ASSIGNMENT N0 2

SUBMITTED TO SIR, QAYUM ULLAH

SUBMITTED BY AMIN UL HAIDER

CLASS NO 171559

TOPIC COMPARISON OF SWEDISH AND

PAKISTANI FINANCIAL REGULATRY
SYSTEM

SUBJECT FINANCIAL INSTITUTIONS

DEPARTMENT ECONOMICS

SEMESTER 5TH

ISLAMIA COLLEGE UNIVERSITY PESHAWAR .

DATE
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INTRODUCTION

The financial sector in Pakistan comprises of Commercial Banks, Development Finance Institutions
(DFIs), Microfinance Banks (MFBs), Non-banking Finance Companies (NBFCs) (leasing companies,
Investment Banks, Discount Houses, Housing Finance Companies, Venture Capital Companies,
Mutual Funds), Modarabas, Stock Exchange and Insurance Companies. Under the prevalent
legislative structure the supervisory responsibilities in case of Banks, Development Finance
Institutions (DFIs), and Microfinance Banks (MFBs) falls within legal ambit of State Bank of Pakistan
while the rest of the financial institutions are monitored by other authorities such as Securities and
Exchange Commission and Controller of Insurance. Security and Exchange Commission of Pakistan
replaced the Corporate Law Authority in 1997. It exercises supervisory control on the non-banking
sector like insurance companies, corporate sector and stock exchanges etc.

In Sweden, the Financial Supervisory Authority is responsible for financial regulation. In Swedish,
the institution is called Finansinspektionen (FI) which is a combination of the former financial and
insurance supervisory bodies. The Bank Inspectorate oversaw banking and other financial market
operations while the Insurance Supervisory Authority only focused on the insurance industry. In
1991, these two bodies were combined to form FI which covered both tasks under one roof.

FI is one of the world’s most trusted financial regulators, which is why Sweden has received a
triple-A rating from the most renowned credit rating agencies. Still, financial regulation in Sweden
is largely controlled by the EU, since the country is a member of the union.

The four main categories of banks on the Swedish market are Swedish commercial banks, foreign
banks, savings banks and co-operative banks. In December 2018, Sweden had a total of 124 banks,
comprising 39 commercial banks, 36 foreign banks, 47 savings banks and two co-operative banks.
The Swedish state owns one bank, which mainly offers mortgage loans, and has no other ownership
in the banking sector. The most common means of payment in Sweden are the various charge cards
and electronic giro systems. Most payments are linked to bank transaction accounts, which facilitate
salary deposits, ATM withdrawals, credit and charge card purchases and automatic transfers. In
Sweden there are 2,655 ATMs and 219,000 card payment terminals.
LITREATURE REVIEW
Financial regulation is a form of regulation or supervision, which subjects financial institutions to
certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial
system.These regulations are carried out by differene financial institutions.In Pakistan state bank
of Pakistan (SBP) is a type of financial institution which perform monetary policies and supervise
and control different finanancial institutions of our country .Similarly the Riksbank in sweden is
responsible for its country monetary poilicies and supervision of different financial banks

. Security and Exchange Commission of Pakistan (SECP) is a financial regulatory authority in

Pakistan. to effectively regulate the capital markets, and supervise and control corporate entities.
. The vision of SECP is development of modern and efficient corporate sector and capital market,
based on sound regulatory principals. In Sweden Financial Supervisory
Authority (Finansinspektionen, FI) is responsible for financial regulation in Sweden. It is
responsible for the oversight, regulation and authorisation of financial markets and their
participants. FI was formed 1991 to create a single
integrated regulator covering banking, securities, and insurance in Sweden. FI's primary
responsibility is market stability and the monitoring of financial markets and participants. It also
has a responsibility to provide consumer protection in relation to financial products.
The Stockholm Stock Exchange (Swedish: Stockholmsbörsen), operating under the
name Nasdaq Stockholm, is a stock exchange which provide financial services and operate
marketplaces for securities in the Nordic, Baltic, and Caucasian regions of Europe .While
The Pakistan Stock Exchange (PSX) is a stock exchange in Pakistan with trading floors
in KarachI which provide market place for different financial investors in Pakistan.
SWEDISH FINANCIAL SYSTEM

Overview
The Swedish financial system is large, with assets equivalent to more than 5.5 times GDP. Swedish
banks comprise more than two-thirds of the financial sector by assets. The banking sector is highly
concentrated, with one global systemically important bank (G-SIB) and three other large domestic
banks, with extensive reach across the Nordic-Baltic region, collectively accounting for over three-
quarters of the domestic Swedish banking market..

The four large banking groups are not homogeneous. One bank, SEB focuses on corporate and
small business clients, with a correspondingly smaller share of the residential mortgage and
consumer loan markets. Swedbank provides products and services to 59 generally small savings
banks in addition to its own broad financial services offerings. Both SEB and Swedbank have
significant presence in the Baltic countries. Handelsbanken has more branches in the United
Kingdom than in Denmark, Norway and Finland combined. Nordea, the largest Swedish banking
group, is also the biggest bank in Finland, and has a significant market share in both retail and
corporate banking in Denmark and Norway, making it the biggest bank in the Nordic region.

While the four large banking groups offer a wide range of financial services, the commercial bank
and their mortgage subsidiaries are the dominant entities in each case. Insurance companies
comprise about 7 percent of the combined assets of the four large banking groups. While large
Swedish insurers also have banks in their groups, the bank subsidiaries are small relative to the
insurance business.

Capital markets are well developed, with total government and corporate bonds outstanding
equivalent to about 90 percent of GDP and stock market capitalization of about 140 percent of
GDP. Covered bonds account for about 40 percent of the bond market, with government securities
comprising an additional 25 percent. The balance is largely comprised of large highly rated
corporates, and a small but growing portion of smaller and less highly rated issuers.

Large Swedish banks are highly dependent on market funding, primarily through covered bonds.
Deposits comprise only about one-third of the aggregate funding for all deposi taking institutions
(banks and credit institutions). Rather than holding large deposit balances, Swedish households
accumulate significant savings in pensions, insurance and mutual funds. Insurance companies and
the state pension funds hold 42 and 13 percent respectively of outstanding Swedish bonds,
reflecting their important role in intermediating savings for mortgage finance through covered
bonds.

Foreign investors hold about one-quarter of outstanding Swedish bonds, equivalent to more than
20 percent of GDP. Swedish covered bonds are issued in SEK and foreign currencies, primarily dollars
and euros. The underlying mortgages are SEK-denominated with the issuerswapping foreign
currency proceeds for SEK.

Despite the large size of the Swedish banking market, the number of staff dedicated to banking
supervision (Banking Operations) within FI total only 91 staff positions to supervise 124
institutions. An additional 22 staff within FI provide support (e.g., AML reporting and IT) to Banking
Operations. Under FI’s risk-based approach, supervisory intensity varies depending on the
importance of the institution. FI’s uses a similar approach in its supervision of insurance companies,
dividing institutions into four categories and using a risk-based allocation of resources.

FI is a unified supervisor with responsibility for oversight of almost 2,000 entities. Supervised
entities include banks and other credit institutions, insurance companies, insurance brokers,
mutual benefit societies, securities and fund management companies, stock exchanges,
authorized marketplaces and clearing houses. FI is also the macroprudential authority and has a
consumer protection mandate.

The Swedish financial system is large and highly interconnected, putting a premium on the
accompanying policy framework. Relative to the size of the domestic economy, the financial system
is among Europe’s largest. It features complex domestic and international linkages, reflecting
Sweden’s role as a regional financial hub. The systemic nature of the financial sector raises
expectations for the quality of the policy framework and financial safety nets.

Sweden’s financial system is large, with assets of about 5.5 times GDP.

1.  The banking sector comprises more than two thirds of the financial system, with one
global systemically important bank (G-SIB) and three banks designated by FI as Other
Systemically Important Institutions. . The four banks account for over three-quarters of the
Swedish banking market and have extensive reach across the Nordic-Baltic region.
2.  The insurance sector is dominated by life insurance companies, many of which specialize in
occupational pension insurance. Total insurance assets were about 100 percent of GDP at
end-2015, of which 88 percent are in the life insurance sector. There are over 300 insurance
companies in Sweden, but most are small local firms. Industry concentration is high.
3.  Capital markets are well developed. Outstanding government and corporate bonds are
equivalent to about 85 percent of GDP and stock market capitalization is about 140 percent
of GDP. Covered bonds account for about 45 percent of the bond market, with government
securities comprising an additional 25 percent. . The rest is largely made up of highly rated
corporates and a small but growing portion of smaller and less highly rated issuers. Foreign
investors hold about one-quarter of outstanding Swedish bonds, equivalent to more than 20
percent of GDP. Securities markets services can be easily provided on a cross-border basis.
4.  Four critical domestic financial market infrastructures (FMIs) operate in Sweden: RIX, the
realtime gross settlement payments system, owned and operated by the Riksbank;
Bankgirocentralen BGC AB, which processes a range of retail payments, cash withdrawals,
and card payments; one domestic central counterparty, NASDAQ Clearing, which clears
exchangetraded financial and commodity derivatives, over-the-counter (OTC) interest rate
derivatives (IRD) and repos; and one domestic central securities depository (CSD) and
securitiessettlement system (SSS) for Swedish shares and fixed income securities, Euroclear
Sweden. There are no trade repositories. Several FMIs located outside Sweden are also
relevant for the Swedish financial system.

2. Sweden’s oversight framework relies on three institutions and the Ministry of Finance.
 FI is the single supervisor, with a mandate also for consumer protection and macroprudential
issues. The central bank (Riksbank) is in charge of monetary policy, systemic liquidity, and
payments oversight. The National Debt Office (NDO) acts as the resolution and deposit insurance
authority. The Ministry of Finance (MoF) drafts financial legislation. The Riksbank is an
independent authority under the Parliament, while FI and NDO are authorities under the
government. FI’s and NDO’s budgets are approved by the MoF.

A Financial Stability Council (FSC) was created in 2013. It is chaired by the Ministry of Finance
and comprises the Riksbank Governor, FI Director General, and the NDO Director General. It is a
forum for, among other things, monitoring financial stability and discussing the need for
measures to prevent financial imbalances and crisis management measures. It has no decision-
making powers

STATE BANK OF PAKISTAN

BANKING SECTOR FINANCIAL REGULATIONS

Historical Background

State Bank of Pakistan (SBP) has been established under the SBP Act, 19563 with
retrospective effect from 1st July, 1948. Before independence, Reserve Bank of India (RBI)
was the Central Bank of the subcontinent. After independence, the assets of RBI were
divided between India and Pakistan with ratio of 70:30. The 30% reserve was equal to Rs.
750 million. Qaid-e-Azam Muhammad Ali Jinnah inaugurated SBP.
The State Bank of Pakistan exercises control, regulation and supervision of financial
system through conduct of monetary and credit policies. The SBP strictly monitors the
working of all the banking companies to ensure compliance of the statutory criteria and
banking rules and regulations.
It is Banker’s Bank, Lender of Last Resort and Banker to Government. It has monopoly over
issuance of currency notes and fixation of interest rate, thus having ultimate control over
inflation. SBP is lender of last resort for the commercial banks. For instance, when banks
have shortage of cash reserve then the state bank rescues them from the dangerous
situation and safeguard the banks from liquidation. SBP collects taxes and other payments
for repaying external debts.
As a banker to the government, SBP keeps government deposits, provides short term
advances and foreign exchange for purchasing foreign goods and repaying external debts.
The secondary functions of SBP include public debt management, management of foreign
exchange, advisor to government and dealing with International Financial Institutions (IFIs).
SBP is custodian of foreign exchange reserve. It manages the exchange control and fixes
value of currency and also checks currencies flight in and out. It is SBP maintains government
deposit accounts, effects domestic and foreign currency transactions and provides advice
relating financial matters. Non-traditional functions of SBP include development of financial
institutions i.e. Commercial Banks, Micro Finance and Islamic banking, training bankers,
development of specialized financial institutions and providing credit to private sector
(Industrial, Agricultural and Exportation). agent of the government and Pakistan’s
representative with IMF and World Bank.

SECURITY AND EXCHANGE COMMISSION OF PAKISTAN

(REGULATIONS OF NON-BANKING SECTOR)
Security and Exchange Commission of Pakistan (SECP) is a financial regulatory authority in
Pakistan. It has been setup under the Security and Exchange Commission of Pakistan Act
1997 and became operational in January 1999. In order to carry out reforms, SECP has been
established through an Act in December, 1997 “to effectively regulate the capital markets,
and supervise and control corporate entities. As of 30 June 2004, there were a total of
43,728 Companies in the country. Of these, 42, 681 companies were limited by shares
including 39,769 private companies, 2,768 public companies and . Foreign companies in
Pakistan totaled 555; of these, 39 percent belonged to European countries, 18 percent to
Asian countries and 17 percent to the United States of America (USA). New companies
registered during the course of the year totaled 2,207.
The Karachi Stock Exchange (KSE) was pronounced as one of the best performing markets in
the world in 2004. Aggregate market capitalization of KSE was recorded at Rs. 1,421 billion.
The Karachi Stock Exchange 100 shares index (KSE-100 Index) reached an all-time high of
5,620.7 in 2004144 SMCs.
SECP was initially confined to regulation of corporate sector and capital market. However,
its mandate has expanded to supervision and regulation of insurance companies, non-
banking finance companies and private pensioners. The vision of SECP is development of
modern and efficient corporate sector and capital market, based on sound regulatory
principals. Mission is to develop a fair efficient and transparent regulatory framework, based
on international legal standards and best practices. Its strategy is to develop an efficient and
dynamic regulatory body, ensure proper risk management procedures in the capital market,
and protect investors through responsive policy measures and effective enforcement
practices.
The functions of SECP include regulating the issue of securities, the business in the stock
exchanges and any other securities markets, prohibiting fraudulencentral depository and
stock exchange clearing house; and encouraging the organized development of the capital
markets and the corporate sector in Pakistan. The SECP is divided into following four
divisions.
1. Securities Market Division
2. Company Law Division
3. Specialized Companies Division
4. Insurance Division.

Conclusion
State Bank of Pakistan (SBP) has formal regulatory control over banking sector which is
exercised through statute of State Bank of Pakistan Act, 1956 and the subordinate
legislation. Similarly, SECP established through SECP Act, 1997 exercises control over the
non-banking financial sector i.e. equity market. The public finances are administered by the
Finance Division of Government of Pakistan in accordance with provisions of the
Constitution. Provincial shares are distributed according to National Finance Commission
Award and the public finances are expanded as per provisions of Financial Rules. SBP, being
the central bank is the main regulator of monetary and fiscal policies. Thus, it has control
over the public and private sectors.
SECP is relatively new organization which has been established since 1999 to regulate the
equity market. Its predecessor Corporate Law Authority (CLA) was an attached
department of the Federal Industries Department. SECP is run by the Board of Directors.
Most of the members are drawn from the private sector. The principle of conflict of interest
is somewhat compromised. Moreover, the regulations are of civil nature and penalties are of
minor pecuniary value which do not serve sufficient deterrence. Although, SECP keeps
issuing press releases highlighting punitive actions taken, showing strict enforcement of
regulations.