On 1 March this year it will be a criminal act to conduct financial leasing activities without a registration or license from the SFSA
Background
Financial leasing is a financial activity which requires registration with the Swedish Financial Supervisory Authority (the “SFSA”) (Sw. Finansinspektionen).
The Swedish Parliament has on 14 January this year decided that a new act shall enter into force on1 March whereby conducting financial activities, such as financial leasing, without a license or registration will be a criminal act leading to fines or, in serious cases, up to six years’ imprisonment.
Now therefore, if you are commencing leasing activities and are not registered with the SFSA, you need to be cautious that your activities do not constitute financial leasing but rather operational leasing activities.
The act introduces a new criminal offence called “illegal financial activities” (Sw. olovlig finansiell verksamhet) and applies to anyone who intentionally or through gross negligence conducts financial activities without the required authorisation or registration.
It may be difficult to determine if leasing activities are financial or operational. We therefor want to highlight some differences between the models.
Current supervisory powers
According to current legislation, the SFSA’s supervisory powers primarily include conducting investigations, ordering anyone conducting activities requiring registration or a licence to file an application with the authority. The SFSA may also decide that a company that conducts or has conducted financial activities without being registered shall pay a punitive fine.
Leasing agreements and the registration requirements
Financial leasing activities require registration with the SFSA rather than authorisation. In terms of leasing agreements, these can be classified as operational leasing or financial leasing, depending on the nature of the services.
You must understand the vital differences between these types of leasing arrangements to determine whether a leasing provider must be registered with the SFSA. You must analyse the characteristics of the agreement, its duration, ownership, maintenance, risk aspects, termination, purchase obligations etc. The analysis must be made on a case-by-case basis.
A financial lease is a long-term arrangement where the lessee bears most of the risks and rewards of ownership. Lease payments are structured to recover the asset’s acquisition cost together with a finance charge (like interest). The lessee typically cannot terminate early without significant cost, is responsible for maintenance and insurance, and may have an option to purchase the asset at the end of the term.
An operational lease is a rental of the asset for a fixed fee where the lessor retains the risks and rewards of ownership. The lease term is usually shorter, can be cancelled with short notice usually without penalties, and payments are for the right to use the asset only. The lessor typically handles maintenance and replacement risk, and there is usually no purchase option at the end of the lease.
Many leasing arrangements include elements from both options which could make it tricky to determine whether the lease is financial or operational. Hence, there is a risk that your leasing activities will be illegal and if you are not registered with or hold a license from the SFSA you may have to pay a fine or in the worst case be imprisoned
Synch Law has extensive experience in analysing leasing agreements to determine whether the agreement/setup should be classified as financial or operational lease and provide recommendations regarding the measures to be taken to “transform” a financial to an operation lease (which is not subject to license or registration with the SFSA).
Please feel free to get in touch with Johan Ragnar at johan.ragnar@synch.law or Oscar Tollofsen at oscar.tollofsen@synch.law if you need further advice, need help with registering your company or an analysis of your leasing setup.
