Swedish Credit Unions used to serve as attractive legal vehicles for capturing deposits and offering loans to a member base of less than 1000 physical individuals. The entities would be formed as Swedish Economic Associations and operate under an exemption from bank license requirements stipulated in Chapter 2, Section 7 of the Swedish Banking Act 2004:297. The most common term used to describe this type of entity in English would be Credit Union or Savings & Loan Association. In Swedish it would typically be referred to as a “Sparkassa” (Sparkassor in plural).
The Swedish Credit Unions gained popularity as vehicles for international deposit taking and lending thanks to the absence of any restrictions in regards to countries of residence or nationality of the Board of Directors or Members, and needless to say thanks to the exemption from bank license requirements, capital requirements or supervision of any kind.
Although the license exemption for Economic Associations taking deposits and offering loans to members only is still in place, such entities would now be subject to additional limitations as non bank deposit takers in accordance with the Deposit Taking Act 2004:299. The Act clearly stipulates that it only regulates entities taking deposits from the general public. The Swedish Financial Regulator, Finansinspektionen (FI) consider however that any group of individuals, however closed in nature, and thus including a group of Credit Union members with a common economic bond, to constitute a “part of the general public”. This means that a group which is small enough and with an identifiable economic bond or other association can still qualify for the exemption from bank license requirement if organized as an Economic Association. The entity would however be subject to regulation under the Deposit Taking Act which would limit the maximum deposit from any customer to SEK 50,000 (Approximately EUR 5000) and require registration with the FI. The registration part is not really cumbersome, but requirements to file audited accounts and comply with ongoing reporting requirements make the Credit Unions a rather unattractive choice for deposit taking these days considering the limitation on deposit sizes. You can still find web sites marketing Swedish Credit Union registration services of varying quality. Under the current regulatory framework however, the Credit Unions are only suitable for local cooperative micro finance operations.
For information about other type of Financial Entities with the legal capacity to offer Banking Services to any number of clients in any country without restrictions, please visit www.banking4bankers.com.
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