This country-specific Q&A provides an overview of the legal framework and key issues surrounding blockchain law in Sweden.
This Q&A is part of the global guide to Blockchain.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/blockchain/
Please provide a high-level overview of the blockchain market in your jurisdiction. In what business or public sectors are you seeing blockchain or other distributed ledger technologies being adopted? What are the key applications of these technologies in your jurisdiction, and what is the state of development of the market?
The adoption of blockchain and other distributed ledger technologies in Sweden has not yet fully taken off. A number of initiatives and collaborations have been initiated with the purpose of utilising and commercialising the technology, but the market is still in its very early stages. Our view is that so far, the technology is most commonly seen in the fintech sector, with relatively few other applications.
One of the most noted non-financial applications of blockchain technology in Sweden, however, is a collaboration between the Swedish Mapping, Cadastral and Land Registration Authority (Sw. Lantmäteriet) and a number of companies from the private sector, which used blockchain technology to successfully carry out a real estate transaction (see more below). We are also aware of attempts to create electronic negotiable promissory notes using blockchain solutions (which carries specific legal issues under Swedish law, that technology could potentially resolve). There are also established businesses in Sweden dealing with virtual currencies mining and businesses that offer trading venues for virtual currencies and tokens.
Furthermore, the potential launch of an “e-krona”, a digital version of the Swedish krona which would be issued by the Swedish central bank (Riksbanken), has been discussed for quite some time now. It has not yet been confirmed whether it will be based on blockchain (or any other distributed ledger technology) however, or indeed if it will even become reality at all.
Have there been any notable success stories or failures of applications of these technologies in your jurisdiction?
The Swedish Mapping, Cadastral and Land Registration Authority together with Landshypotek Bank, SBAB, Telia Company, ChromaWay, and Kairos Future first started testing blockchain technology in 2016, completing their second stage of trials in March 2017. By July 2017, the Swedish land registry was using blockchain technology to register land and properties on the Swedish blockchain startup ChromaWay’s private blockchain network, albeit on a “small scale”. In June 2018 the authority conducted its first blockchain property transaction, when ownership of a small property on the Swedish island of Gotland shifted hands using blockchain.
The institute for the accountancy profession in Sweden (FAR), are working on a project together with the Swedish Tax Agency, Kairos Future, Visma, SEB, Fortnox, and FAR members Deloitte, PwC, Grant Thornton, and KPMG, where blockchain technology is proposed to perform a key role in modernizing accounting, auditing and tax matters.
SEB, one of the major banks in Sweden, has initiated a project together with Nasdaq, the stock exchange operator, called “Nordic Fund Ledger”, which is aiming to improve mutual fund trading by applying blockchain.
Please outline the principal legislation and the regulators most relevant to the use of blockchain technologies in your jurisdiction. In particular, is there any blockchain-specific legislation or are there any blockchain-specific regulatory frameworks in your jurisdiction, either now or envisaged in the short or mid-term?
There are no blockchain technology specific regulations as to this date, and as far as we are aware, there is no such legislation envisaged in the short or mid-term either. This is of course one of the main challenges with blockchain technology. It is a novel technology which in many ways does not fit in with the current legal framework, and the absence of new legislation specifically addressing it creates a legal vacuum. This means one often has to use the existing legal framework and force blockchain to fit within that framework, which of course is not ideal.
In our view, the principal supervisory authorities likely to make inroads in the blockchain space are the Swedish Financial Supervisory Authority (the “SFSA”) and the Swedish Data Protection Agency.
What is the current attitude of the government and of regulators to the use of blockchain technology in your jurisdiction?
The Minister of Finance has declared in a public answer to the Swedish parliament that the Swedish government is positive towards technical innovations and that blockchain technology creates opportunities in a variety of sectors where the technology could be used to improve the keeping of records. Hence, the attitude should be regarded as positive.
Are there any governmental or regulatory initiatives designed to facilitate or encourage the development and use of blockchain technology (for example, a regulatory sandbox)?
In 2017, the Swedish government assigned a special committee to investigate the needs for legislative changes in order to eliminate barriers for digital development in the public sector. However, the investigation did not result in any legislative amendments to facilitate the use of blockchain technology.
No regulatory sandbox has yet been introduced in Sweden to encourage the use of blockchain technology. The government, larger financial institutions and private equity firms asked the SFSA to consider the need for a regulatory sandbox in Sweden. The SFSA decided against creating a regulatory sandbox with the argument that innovations in the financial sector are already strong in Sweden and that a regulatory sandbox could adversely affect competition in the market. For the same reason the SFSA decided not to consider any regulatory changes.
Upon instruction by the Swedish government, the SFSA has established a fintech-specific innovation centre with the purpose of creating a designated space where fintech companies can engage in dialogue with the SFSA and receive information on the regulations applicable to their business, thus facilitating fintech companies’ regulatory compliance. The innovation centre is not, however, a regulatory sandbox allowing companies to test their innovations in the market under the SFSA’s supervision. The SFSA believes that the innovation centre has greater potential to succeed than the establishment of a regulatory sandbox.
Have there been any recent governmental or regulatory reviews or consultations concerning blockchain technology in your jurisdiction and, if so, what are the key takeaways from these?
The Swedish Competition Authority recently issued a report which analysed blockchain technology from a competition perspective. It looked into whether blockchain technology could have potential anti-competitive effects, but also whether it could facilitate the Competition Authority’s supervisory work. Mainly, it found that while risks exist that blockchains are used for anti-competitive practices, today such risks are mostly of a theoretical nature. It pointed out however, that whatever risks there are could be reduced by giving competition authorities insight into private blockchains which are developed within consortia of companies, either voluntarily or through legislative measures.
Has any official guidance concerning the use of blockchain technology been published in your jurisdiction?
To our knowledge, no official guidance has been published concerning the general use of blockchain technology per se. Whatever guidances have been published so far mainly concern the use of cryptocurrencies. One such has been published by the Swedish Tax Authority, for instance.
What is the current approach in your jurisdiction to the treatment of cryptocurrencies for the purposes of financial regulation, anti-money laundering and taxation? In particular, are cryptocurrencies characterised as a currency?
For income tax purposes, cryptocurrencies are generally not characterised as a currency. In a recent ruling regarding the classification of bitcoins (HFD 2018 ref. 72), the Supreme Administrative Court held that currency generally refers to a payment instrument issued and guaranteed by a central bank or similar institution of a state. Bitcoin lacks a formal publisher. Its value is not based on any claim on the issuer but is determined based on market availability and demand. A bitcoin is also not generally accepted as a means of payment. Against this background, a bitcoin cannot be regarded as a currency within the meaning of the income tax legislation. A sale of a bitcoin should therefore be taxed in accordance with the provisions for “other assets” in the income tax legislation, meaning that upon disposal, such as a sale or an exchange if used as payment for goods or services, capital gains are taxed as capital income at a rate of 30 per cent and capital losses are deductible with 70 per cent. The Swedish Tax Agency has in a statement held that the same applies for other equivalent cryptocurrencies.
If transactions in cryptocurrencies are carried out as a business or if a person carries out so-called “mining” of cryptocurrencies, the tax rules for business income or employment income (hobby) will also be relevant to consider.
For VAT purposes, the provision of exchange services relating to bitcoins has, however, been considered to fall within the scope of the VAT exemption for currency transactions based on the ECJ ruling C-264/14, Hedqvist (HFD 2016 ref. 6).
From a financial regulatory perspective, the SFSA has not provided any conclusive guidance on the treatment of cryptocurrencies or cryptoassets for the purposes of financial regulation. It has been indicated that a cryptocurrency or cryptoasset may be treated as a currency if it constitutes a means of payment. The determination whether the cryptoasset meets the definition of a financial instrument and whether the services or activities provided therewith should be treated as a regulated investment service or activity is made on a case-by-case basis. Authorisation may be required from the SFSA prior to conducting certain activities in Sweden.
For AML purposes, business involving exchange of cryptocurrencies that is conducted professionally and not ancillary to the business is, in general, within the scope of the AML regulations. The applicability of the AML regulations to other businesses must be made on a case-by-case basis. Starting from next year, Directive (EU) 2018/843 is intended to be implemented into Swedish law and will bring all business involving exchange of cryptocurrencies as well as wallet providers within the scope of the AML regulations.
Are there any prohibitions on the use or trading of cryptocurrencies in your jurisdiction?
There are currently no specific prohibitions on the use or trading of cryptocurrencies in Sweden. However, several restrictions may apply depending on the business and services provided and, as such, the business and services must always be reviewed in light of, primarily, the general regulatory framework on financial services and consumer protection.
As mentioned, authorisation may be required from the SFSA prior to conducting certain activities in Sweden. If the business of an entity entails offering bitcoin or other cryptocurrencies and digital currencies used as a means of payment from its own books (i.e. already existing assets), the entity must apply for registration as financial institution with the SFSA.
To what extent have initial coin offerings taken place in your jurisdiction and what has been the attitude of relevant authorities to ICOs?
As far as we are aware, only a few ICO’s have taken place in Sweden (for example by Starflow AB and Chromaway AB).
The SFSA has been reluctant regarding giving (official as well as non-official) statements on cryptocurrencies and blockchain. The SFSA believes that it is not in position to determine whether cryptocurrencies generally are considered financial instruments or not. The SFSA’s view is that this assessment must be made on a case by case basis, taking into account, inter alia, how the cryptocurrencies are electronically registered, their transferability and whether they entail any rights or obligations on behalf of the holder and issuer respectively.
If they are permissible in your jurisdiction, what are the key requirements that an entity would need to comply with when launching an ICO?
The requirements when launching an ICO depend on whether the actual cryptocurrency is considered a financial instrument or not, which (as mentioned above) will be assessed on a case by case basis. If the cryptocurrency is considered a financial instrument, it will be governed by the Swedish securities regulations (such as MiFID, the Prospectus Regulation, the Swedish Financial Instruments Trading Act and the Swedish Securities Act etc). If the cryptocurrency is not considered a financial instrument, there are no such rules when launching an ICO.
Please note that Swedish regulated markets as well as multilateral trading platforms (“MTFs”), including the rules and regulations governing these trading venues and their issuers, are not adapted to the listing/trading of cryptocurrencies. No cryptocurrencies are therefore admitted to trading at Swedish regulated markets or MTFs. However, Nasdaq Stockholm has admitted to trading certificates issued by financial institutions with cryptocurrencies as underlying instruments.
Is cryptocurrency trading common in your jurisdiction? And what is the attitude of mainstream financial institutions to cryptocurrency trading in your jurisdiction?
We would not consider cryptocurrency trading “common” in Sweden. Trading in bitcoin is possible through certain marketplaces by purchasing a variety of financial instruments. Financial institutions are receptive to the long term development of cryptocurrencies, but are generally advising customers to be cautious in relation to cryptocurrencies as an investment. At least one major Swedish bank is restrictive with allowing customers to purchase cryptocurrencies.
Are there any relevant regulatory restrictions or initiatives concerning tokens and virtual assets other than cryptocurrencies (e.g. trading of tangible property represented by cryptographic tokens)?
There are no specific regulatory restrictions or initiatives concerning tokens and virtual assets other than what is mentioned in the answer to question 8 above.
Are there any legal or regulatory issues concerning the transfer of title to or the granting of security over tokens and virtual assets?
Under Swedish law, the pledgor must not have the right to dispose of the secured asset for a security interest or a transfer of title to be valid in relation to third parties. If tokens or virtual assets are held by a third party, a notification to that party should be sufficient to perfect the security, similar to the granting of security over dematerialised shares. If the tokens or virtual assets are not held by a third party and provided that it is technologically possible, the security may be perfected by letting the blockchain network know that the assets are pledged and that the secured assets may not be transferred without the consent of the pledgee. If such notification is not possible there might be an issue with the perfection of the security. As regards transfers of title, the blockchain technology would typically automatically meet the customary requirements for a valid transfer of title without the need of further actions by either party.
To what extent are tokens and virtual assets in use in your jurisdiction? Please mention any key initiatives concerning the use of tokens and virtual assets in your jurisdiction.
According to the SFSA, there are transactions in Sweden involving virtual assets, although virtual currencies are not considered common method of payment in Sweden. There are also established businesses in Sweden dealing with virtual currencies mining and businesses that offer trading venues for virtual currencies and tokens.
How are smart contracts characterised within your legal framework? Are there any enforceability issues specific to the operation of smart contracts which do not arise in the case of traditional legal contracts?
Swedish law concerning formation of contracts is technology neutral, meaning that entering into agreements electronically does not pose a problem per se. However, under Swedish law the formation of a contract in principle requires that the parties exchange declarations in some form. This requirement may cause problems where the agreement is concluded electronically automatically without or with very limited human influence, meaning that certain types of smart contracts may not meet the definition of a binding agreement.
Moreover, all electronically concluded contracts are seen as distance contracts since the parties do not meet when the agreement is concluded. This is in turn entails that the distance contract consumer protection legislation will be applicable where one of the parties is a consumer. Similarly, given that smart contracts are not specifically regulated, general principles regarding, for instance, consumer protection will apply.
To what extent are smart contracts in use in your jurisdiction? Please mention any key initiatives concerning the use of smart contracts in your jurisdiction.
Smart contracts are not yet used in any significant scale in Sweden. To our knowledge, no key initiatives concerning the use of smart contracts have been launched.
Have there been any governmental or regulatory enforcement actions concerning blockchain in your jurisdiction?
In 2015, Högsta Förvaltningsdomstolen (the Supreme Administrative Court) of Sweden requested a preliminary ruling from the ECJ (C-264/14) concerning the interpretation of Articles 2(1) and 135(1) of directive 2006/12/EC on the common system of value added tax (the “VAT Directive”). The request had been made in proceedings between the Swedish Tax Authority and an individual concerning a preliminary decision given by Skatterättsnämnden (the “Swedish Revenue Law Commission”) on whether transactions to exchange traditional currency for bitcoin or vice versa, which the individual wished to perform through a company, were subject to value added tax.
The Swedish Revenue Law Commission had found in a preliminary decision sought by the individual that purchase and sale of Bitcoin was exempt from VAT under the Swedish VAT Act. Their decision was however appealed by the Tax Authority to the Supreme Administrative Court arguing that the exchange should not be covered by the exemption, referring to Article 135(1) of the VAT Directive. The question was referred by the Supreme Administrative Court to the ECJ for a preliminary ruling, which ultimately found that the exchange of traditional currencies for units of bitcoin, at least under the specific circumstances at hand, should be exempt from VAT within the meaning of Article 135(1)(e) under the VAT Directive.
Has there been any judicial consideration of blockchain concepts or smart contracting in your jurisdiction?
We are not aware of any judicial consideration of blockchain concepts or smart contracting.
Are there any other generally-applicable laws or regulations that may present issues for the use of blockchain technology (such as privacy and data protection law or insolvency law)?
Forms of contract prescribed by law may limit the use of smart contracts and blockchain technology for certain types of contracts, such as purchase agreements relating to real estate.
Furthermore, the Swedish Enforcement Code requires an original negotiable promissory note to be handed in to the Enforcement Authority, as proof of the claimant being the rightful beneficiary, in order for the authority to collect the debt represented by the promissory note in question. There is currently no established practice in place which allows for this to be done with electronic documents, and the Enforcement Authority has previously stated that it will not accept or collect debts on electronic negotiable promissory notes (as identifying which electronic file is the original would not be possible, in the authority’s view). Thus, the Enforcement Code does present issues in this regard. However, a Swedish Supreme Court ruling from 2017 has, obiter dicta, stated that this may be resolved through new technological means. It may therefore be that a robust blockchain solution (which demonstrates the ownership chain of the promissory note) could prove to be acceptable to the Enforcement Authority. However, this is yet to be seen.
Are there any other key issues concerning blockchain technology in your jurisdiction that legal practitioners should be aware of?
Legal practitioners should be aware of the fact that Swedish law has generally not been adapted for this rather new technology.
It should also be noted that there are still uncertainties under Swedish law as to how virtual currency should be classified. The SFSA currently says that bitcoin and other similar currencies should be seen as “means of payment”, but the classification may not necessarily be the same for all and there may be further legal development in this regard.