FI’s 2017 Annual report: A word from the Director General

When I started at Finansinspektionen (FI) in the autumn of 2015, I viewed communication to be a central part of FI's activities. Communication with different actors on the financial market has also been a large part of FI's work in 2017.

One clear expression of this is the considerable attention FI has received in media and debate forums. Partly because we have actively chosen to explain and motivate decisions and proposals and partly because we have received criticism for what we have done and – sometimes – have not done. This attention shows that FI is an important actor. FI also has a broad mandate. The fact that we are scrutinized and questioned is therefore natural and in the long run a prerequisite for us being able to fulfil our assignment.

FI also communicates in less visible forms, in particular with the firms that we supervise. One way we communicate is by deciding on and publishing rules on how firms shall or should act. Sometimes we also need to clearly specify how firms may not act by issuing a sanction when the rules are broken, and this type of communication offers guidance to other firms as well. But there are many different ways to communicate in the span between regulations and sanctions.

We have widened and intensified the direct contact we have with the firms we supervise and their industry organisations. This gives us an opportunity to explain our view of the rules and risks at the same time as we are able to hear the viewpoints of the firms. In 2017, we held more than 100 meeting of this type at different levels of the firms, from the Boards of Directors and downward.

The firms often seek help in interpreting regulations, and FI wants to make it easier for them to do the right thing. We therefore focused in 2017 on new methods to spread information. We held 16 FI Forums for the industry, which drew approximately 2,000 participants in person and were later watched online by around 10,000 people. We have also regularly published Q&As about new regulations on our website, and we have published the closing letters from various supervisory investigations so other firms could see the outcome. During the autumn we also began to publish podcasts about current financial topics that targeted both firms under supervision and a wider public. The podcasts targeting a wider public are part of our assignment to promote education in financial matters.

FI will continue to improve the ways we communicate. In 2017, we focused in particular on FinTech firms. We were given an assignment from the Government to investigate how we can meet the needs of firms that develop new financial services, for example to understand how regulations are to be interpreted in relation to new technology and new forms of distribution. We submitted a report to the Government in December, and in this report we announced that we will establish an Innovation Center in 2018 to better meet these needs.

FI's macroprudential policy passed a milestone in December when Parliament adopted a proposal to give FI additional tools to counteract financial imbalances. When FI was given the responsibility for macroprudential policy in 2014, it did not come with any tools. This problem is now resolved. Starting in February 2018, we have access to a wide range of tools, which creates better conditions for us to take action when needed. Just like with previous measures, such as the amortisation requirement that FI introduced in 2016, the Government must approve the application of the new tools.

In June, FI proposed a stricter amortisation requirement. This means that new borrowers with mortgages greater than 4.5 times their gross income must amortise 1 per cent of the debt per year in addition to the previous amortisation requirement. The primary objective is to slow the rate at which debt is increasing and reduce the risks associated with highly indebted households sharply restricting their consumption during an economic downturn. The Government approved the proposal in December 2017, and the stricter amortisation requirement goes into effect as of 1 March 2018.

The trend of rising house prices over a period of many years was broken in late autumn, which drew attention to the stricter amortisation requirement. However, the credit assessments carried out by the banks are already strict, so an amortisation requirement of 1 per cent on households with high loan-to-income ratios will not have a dramatic effect. The stricter amortisation requirement is primarily a formalisation of what should characterize a well-functioning lending market, but more households will be affected if loans continue to grow. The main catalyst behind the fall in house prices lies elsewhere. It was also not unexpected that prices would fall after their long, sharp climb. A more subdued price trend is good for both the economy and those who want to enter the housing market.

Another milestone was the agreement reached by the Basel Committee in December on a new international standard for banks' capital adequacy. The road to this agreement has been long; almost ten years have passed since the financial crisis that triggered the review, and we will not reach the finish line until the EU has determined how the agreement is to be applied, which should take another few years. At FI, we have begun to analyse how the new rules will affect how we handle the capital requirements in Sweden.

New rules on market abuse entered into force during the year. These rules expand FI's role when it comes to investigating regulatory breaches, including issuing sanctions for simpler breaches. One important assignment during the year was to establish a practice for how the rules will be applied and find ways to cooperate with the Swedish Economic Crime Authority.
During the year, deficiencies in the compliance of firms active in the public premium pension system were identified. Some of the problems have arisen in fund management companies that are under the supervision of other countries. FI therefore cooperated with the Swedish Pensions Agency to determine what had happened. A political agreement was presented in December that will make changes to the premium pension system. These changes, for example, will reduce the number of funds and increase security for savers. More in-depth oversight of the system was also announced, which FI welcomes. The premium pension system is mandatory. Consumer protection must therefore give special consideration to people who are not used to making financial decisions. There is a risk that traditional supervision and qualitative requirements will not be enough. It is interesting to note here that Richard Thaler, who won this year's Nobel Prize in Economics for his analysis of how people make decisions, advocates a radical reduction in the number of options in the premium pension system. FI does as well.

The Government has given FI an assignment in several steps to highlight sustainability issues from the perspective of the financial market. In this area, we are working - sometimes internationally - to create unified definitions and measurement methods. We also pursued a dialogue with different parts of the financial industry in terms of scenario analyses as tools for identifying risks. Improved sustainability information in the area of fund savings was another prioritised area. We will continue to prioritise sustainability in 2018.

The fact that FI has knowledgeable and engaged employees makes us an expert authority. For example, during the year FI was given the assignment to develop a proposal for new rules for capital adequacy in firms that offer occupational pension.

Because we have been allocated more funding in 2018, we will be able to further enhance our supervision of the major banks, our analyses and our communication. We will need to recruit more employees, and we have a lot of applicant for the jobs we advertise. But FI must do more to keep the employees we have. We are starting with a solid foundation in that our employees are committed to FI and proud of the work they do. Our staff turnover also went down slightly in 2017, but there is more work to be done.

In this spirit – and to be more efficient – we continued in 2017 to review and modify how we are working. One important step was to create supervisory committees to improve governance and priorities. We also started a project to review the processes dealing with firms' applications for authorisations. The primary goal is to make our working processes more efficient, but we also want to improve how we use our employees' knowledge and dedication. We must meet the competition for our employees head-on by offering even more exciting and challenging tasks. Part of the challenge that FI offers employees is the opportunity to make a difference in an organisation that plays a key role in society.

And FI does make a difference. FI should be a respected authority, but not necessarily liked. I am increasingly seeing signs that we are respected. Even though our analyses and decisions are sometimes questioned, many people consider FI to be developing in the right direction. People are noticing – and appreciating – that we are more actively reaching out to our stakeholders and deepening the analyses that serve as a basis for our decisions. This is how we will we reach our goals: a stable financial system, well-functioning markets, good consumer protection and counteracting financial imbalances. This is how we stay committed to our mission.

Stockholm 16/02/2018

Erik Thedéen
Director General

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