Sweden's Financial Supervisory Authority has fined digital savings and investment bank Nordnet €9.5m for not having met requirements for intraday short-selling services.
Issues with Nordnet's internal guidelines, procedures, risk management and risk assessment as well as in its duty of care to its customers, were highlighted by the Financial Supervisory Authority in a statement on 25 May.
"The investigation was initiated by the short-selling transactions of Nordnet's customers in shares of Moment Group AB on 19 February 2021 that resulted in a large number of shares being sold short without coverage (so-called naked short selling).
"The investigation shows that Nordnet has not met the requirements placed on a third party in the Short Selling Regulation. The bank also does not meet the requirements on internal guidelines and procedures and on risk management and risk assessment, and it has failed in its duty of care to its customers.
"The violations have been of such a nature that there are grounds on which to intervene against Nordnet. The observed violations are not negligible or excusable but neither are they so serious that there is cause to consider withdrawing the bank's authorisation or issuing the bank a warning."
The regulator further said it was "therefore issuing the company a remark and an administrative fine of SEK 100 million".
Nordnet said in its own statement that the background to the decision was the investigation that the SFSA initiated in March 2021, regarding internal governance and control in relation to EU's short-selling regulation.
As a consequence of the short-selling transactions carried out by customers of Nordnet in Moment Group AB on 19 February 2021, the SFSA notified Nordnet of an investigation regarding Nordnet's internal routines and processes for short selling. Since then, a site visit has been carried out, and the SFSA have requested and received written material.
As a part of the investigation process, the SFSA opened a sanction case in December 2021. The sanction process is now closed and Nordnet is issued a remark and an administrative fine of 100 million SEK. The SFSA says in their decision that Nordnet has not had a satisfactory level of internal governance and control in relation to EU's short-selling regulation.
"We have received the decision from the SFSA, and our preliminary assessment is that the fine is far too high. First of all, we have different views on the issue of how the regulations for short-selling transactions should be interpreted. I also think it is of importance that we have had only one single incident of so-called naked short selling, and that it happened on a specific day when the trading in the Moment Group share was very special with incorrect pricing and trading halts.
"Furthermore, we made a report to the SFSA on our own initiative when we saw a need to review our processes in relation to the regulations for short selling, and immediately implemented improvements so that there should be no doubt that our short selling service is completely in line with applicable rules.
"There are no intentional actions or attempt to conceal any circumstances on our part in this matter, and no customer has been harmed. We have actively collaborated with the SFSA throughout the entire case and provided them with the information that has been requested.
"My view is that the SFSA has not taken these circumstances into account when making their decision, and that the fine we have been issued is not on parity with the event that has occurred. It is not unlikely we will appeal," said Lars-Åke Norling, CEO of Nordnet.
