SDBN has no direct competitors. Rather, because of its singular model, SDBN is specialised infrastructure that connects Clients to Central Banks in a way that other institutions can use to expand their offering to Clients, but not replicate. Equally, by limiting itself to its single function, SDBN cannot compete with its Client banks for their customers, because it cannot offer those customers any of the other services they need and expect.

SDBN ‘s offering is designed to complement not replace existing solutions. It does not have direct substitutes. SDBN is one amongst an array of tools that institutions can select to manage their cash in terms of liquidity, risk, and cost. These tools include bank deposits, money market funds and sovereign bonds. Each has attributes that make it useful at different portfolio weights given risk, liquidity and return requirements. As referenced above, SDBN can offer banks a solution on a white-label basis that allows them in turn to offer Clients a wider range of tools.

SDBN’s priority is to further grow its EUR business volumes. CHF and GBP are potential future additions, though they are not yet under active development.

Because of the deliberate specialisation of its banking license, its founding principles, and its nature as a provider of infrastructure rather than traditional banking services, SDBN has a unique balance sheet structure. SDBN is unlike other banks in that it does not take deposits on to its own balance sheet or make loans. Client deposits are not a source of funding for SDBN and therefore never land on the liability side of the balance sheet. The right side of SDBN’s balance sheet is composed entirely of shareholders’ equity.

Equally, SDBN does not make loans, so there are no loans or risky instruments on the asset side.

As a result, SDBN has exceptionally high capital adequacy and strong ratios.

While counterparty, credit and liquidity risk are effectively eliminated in the SDBN structure, operational risk remains a key consideration. For this reason, SDBN operates a new, fully invested, purpose-built core banking system. The system was designed with Temenos (https://www.temenos.com) to provide a durable foundation for SDBN’s specialised infrastructure.

Notable features of the system include:

• Payments cannot go to third parties: SDBN’s core system is hardcoded to restrict payment transfers to each Client’s pre- defined beneficiary account.
• Client account balances cannot fall below zero.
• State-of-the-art, financial crime mitigation is embedded in the system, and operates on an individual account risk matrix basis, screened and updated daily. SDBN was the first and is still the only firm to embed financial crime mitigation into its core system in Norway.
• The systems underwent rigorous vetting by the Central Banks as a precondition to their granting SDBN direct access.

SDBN has financial crime mitigation procedures built into its IT system. The system runs advanced Financial Crime Mitigation, on an individual account risk matrix basis, and is updated daily.

The Bank has also hardcoded restrictions in its core banking system so that a Client may only withdraw funds into one of his/her Predefined Beneficiary Account(s) as per the Account Agreement. SDBN’s core banking system cannot be used to make third-party payments, this means that paying bills or transferring funds to any bank account is not possible, except for the account(s) defined in the Client’s Account Agreement or the E-bank (which requires Board approval). This mitigation provides full transparency on the Client’s transactions.

While SDBN has implemented all the relevant procedures to mitigate financial crime, it is worth noting that the composition of SDBN’s Client base makes fraud unlikely. First, SDBN deals with a small number of Clients, and partners closely with each one. In addition, SDBN’s Clients are exclusively large, regulated institutions, each of which has its own highly developed financial crime mitigation systems and procedures in place.

SDBN’s pricing is a pure pass through of the Central Bank interest rate, plus a fixed basis point fee, that is competitive relative to peers. In addition to the zero risk-weighting and unrestricted liquidity of their cash deposits, Clients benefit from knowing exactly what the yield and cost on their balances will be.

Interest on the deposit is the publicised Central Bank reserve rate and is capitalised daily. Fees are calculated on daily balances and charged monthly. There are no transaction fees. For example, the Client opens an account and agrees with SDBN on a “maximum frame” amount that can be deposited throughout the year, a basis point fee is then agreed on and there are no further costs or transaction fees.