Fintech News – The Payment Inquiry’s report

Major takeaways – Setterwalls’ comments

The report of the Payment Inquiry is comprehensive and solid. Two of the main points of the report are related to national e-id:s and a potential e-krona (a Swedish CBDC):

1. The Inquiry assesses that it is extremely urgent that a national e-id is introduced with the highest level of security. According to the Inquiry, central government has a very important responsibility to ensure that e-id:s are accessible and secure.
2. The Inquiry does not currently see sufficiently strong societal needs for the Riksbank to issue an e-krona. However, the Inquiry is of the opinion that the Riksbank should continue to evaluate the basis for introducing an e-krona in order to enable an introduction within a reasonable timeframe in the event that the Riksdag (the Swedish Parliament) makes such a decision.

The Inquiry

In December 2020, the Swedish government decided to appoint Anna Kinberg Batra (Batra is a Swedish politician who, e.g., has served as leader of the Moderate Party ) as inquiry chair to review the role of the State in the payment market.

The remit of the Payment Inquiry has been to, e.g.:

• analyze the payment market of today and how the payment market is regulated and assessing what the payment market of the future will be like, based on developments in Sweden and other countries;
• identify the roles of the State and industry in the payment market and consider the future role of the State in the payment market;
• map out the division of roles between the State and the business community in the payment market and take a position on the future role of the State in the payment market and the significance and need for certain means of payment to have legal tender status;
• take a position on the need for Sweden’s central bank, the Riksbank, to issue a CBDC (an e-krona); and
• consider whether legislative proposals or other measures are necessary.

Initially, the Payment Inquiry was to present its proposal in November 2022, but following supplementary terms of reference in September 2022, the mandate was extended to March 31, 2023.

Setterwalls is proud to have been given the opportunity to contribute to the Inquiry with a report on the regulations governing the protection of payment data in the Swedish payment market.

Background to the Inquiry – an efficient and secure payment market

The Inquiry terms of reference state that a well-functioning system for making payments is a fundamental prerequisite for the national economy and that the State plays a central role in the payment market, primarily through the Riksbank.

It is essential for society that payments can be made efficiently and with legal certainty. In this respect, a functioning and accessible payment system is an essential and fundamental public service.  With the development of technology, mainly through digitalization, new payment methods provided by private actors have emerged rapidly in the payment market.

The development of the payment market will, among other things, increase the dominance of electronic payments in commercial bank money. This development leads to a reduction in the use of cash, which affects the function of cash as a means of payment.

In view of the importance of the ability to make payments for both individuals and the economy as a whole, the terms of reference of the Inquiry state that the means of payment available should be secure and accessible to the entire population. The central payment system is considered to be of national importance from a security perspective.

All in all, according to the Inquiry terms of reference, there is reason to assume that the State’s role on the payment market must be developed and reassessed. Against this background, there is a need to review the State’s role in the payment market and take a position on what this role should be in the future.

The Payment Inquiry’s proposals and conclusions

The Payment Inquiry presented its proposal on March 31. We provide a summary of the proposal and the Inquiry’s conclusions below.

The State’s role in the payment market

The Inquiry notes that far too many people lack access to digital as well as cash payments. That is why, according to the Inquiry, the State needs to assume greater responsibility for everyone being able to make payments. The State should, e.g., assist more people to enter the digital payment market. The State also needs to assume greater responsibility for the security of the payment ecosystem. The Inquiry, however also states that a stronger role for the State does not mean that the public sector should provide payment services or operate infrastructure to a greater extent.

Options for all to make payments and access to payment services

The Inquiry proposes that the objective of access to basic payment services at reasonable prices should be replaced by a technology-neutral and futureproof objective – that everyone in Sweden should be able to make payments at a reasonable cost, regardless of the means of payment.

Access to payment accounts

The Inquiry assesses that, where the risk of money laundering or terrorist financing in the individual case is deemed to be too high, credit institutions or branches of foreign credit institutions should more often offer payment accounts with a more limited range of services than the statutory basic features provided for by the Swedish Payment Services Act, rather than refusing access to a payment account with basic features.

Trust and integrity in the digital payment market

The Inquiry is of the opinion that primary identification of citizens and residents is a central government responsibility. Therefore, the Inquiry assesses that it is extremely urgent that a national e-id is introduced with the highest level of security as soon as possible. Central government, according to the Inquiry, has a very important responsibility to ensure that e-id:s are accessible and secure. Since the oversight of e-id:s and trusted services is spread across several central government authorities the Inquiry is also of the opinion that the Government should review responsibility for the oversight of e-id:s and trusted services in order to achieve a more coherent, clear and efficient oversight structure.

Further, the Inquiry is of the opinion that the Government, or the authority designated by the Government, should provide clear guidance on the financial secrecy provisions –in relation to, e.g., the EU’s data protection rules.

Competition in the ecosystem for payments

The Government, according to the Inquiry, should instruct an authority to conduct an in-depth analysis of competition in the payment market and, if necessary, propose measures.

The payment infrastructure in Sweden

The Inquiry notes that the current legislation in Sweden concerning the clearing of payments is dated and is too principle-based, which makes it difficult for the Swedish FSA to set clear requirements in an authorisation process and for effective oversight. The legislation has not been updated in relation to global standards and regulations in the EU. The Inquiry welcomes the proposal for a new act for clearing and settlement, which the Riksdag is expected to consider in autumn 2023.

Legal tender

The Inquiry proposes that a new means of payment act should be introduced. The provision in the Riksbank Act that banknotes and coins as well as what is termed ‘contingency money’ issued by the Riksbank, are legal tender, should be transferred to the new Act. The Inquiry also proposes that – in order to strengthen the position of the Swedish krona – the new Act should include a provision obliging a creditor or other payee to receive payment in Swedish kronor, unless otherwise agreed or legally required. The Inquiry also proposes that the Act should contain a rule that a creditor or other payee should be obliged to accept legal tender as payment, unless otherwise agreed or legally required.

Crypto assets

The Inquiry assesses that crypto assets entail potential risks, primarily for financial stability, but that these are currently limited. Because consumer protections covering crypto-assets are weak, they entail a high risk for consumers investing in them. The Inquiry assesses that it is important that crypto-assets are subject to an appropriate regulatory framework proportionate to the specific risks that crypto-assets could pose to the financial system and the monetary system as a whole. According to the Inquiry, new rules should be anchored in principles and standards set at global level.

The need for a central bank digital currency in Sweden

The Inquiry does not currently see sufficiently strong societal needs for the Riksbank to issue an e-krona (a central bank digital currency). The Inquiry, however assesses that the Riksbank should continue to evaluate the basis for introducing an e-krona in order to enable an introduction within a reasonable timeframe in the event that the Riksdag makes such a decision. The Riksbank should therefore come back with a petition to the Riksdag during 2024 with an assessment of whether there are sufficient reasons to introduce an e-krona.

Entry into force

The Inquiry proposes that its legislative proposals shall enter into force on 1 July 2024. Ordinance amendments are however proposed to enter into force on 1 January 2024.