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Danish Banks Must Comply with Stringent Governance Requirements

Copenhagen - The Financial Business Act in Denmark specifies how banks should be organized on a general level, including requirements for governance, risk management, and consumer protection. A closer look at the regulations reveals that Danish banks are subject to strict rules aimed at ensuring their stability and security.

Governance Requirements

The Financial Business Act requires banks to have a clear organizational structure with well-defined responsibilities, good administrative practices, written procedures, effective risk management systems, sufficient resources, and measures to prevent conflicts of interest. The Danish Financial Supervisory Authority (FSA) has issued an executive order on the management of governance of banks, which supplements these requirements.

  • Clear organizational structure
  • Well-defined responsibilities
  • Good administrative practices
  • Written procedures
  • Effective risk management systems
  • Sufficient resources
  • Measures to prevent conflicts of interest

Risk Management

Risk management is a crucial part of overall governance requirements in Denmark. Banks must establish a risk management function and appoint a person responsible for all risk management activities. This ensures that banks can identify, monitor, and report risks to which they are exposed.

Internal and External Audit

All Danish banks must have external auditors who audit their financial statements. Larger banks with more than 125 full-time employees must also have an internal audit function. Smaller banks may choose to have an internal audit if decided by the board of directors.

  • External auditors for financial statement audits
  • Internal audit function for larger banks (over 125 employees)
  • Internal audit optional for smaller banks

Management Structure

Danish banks operate with a two-tier management system, consisting of a supervisory board of directors and a management board. The board of directors is responsible for strategic decision-making and oversight, while the management board is responsible for day-to-day operations.

  • Supervisory board of directors (strategic decision-making and oversight)
  • Management board (day-to-day operations)

Director and Executive Appointments and Removals

The board of directors is elected by shareholders and can be removed at their discretion. The managing director is appointed and removed by the board of directors. The FSA may require the removal of a senior executive if they are no longer deemed “fit and proper”.

  • Board of directors elected by shareholders
  • Managing director appointed and removed by board of directors
  • FSA may remove senior executives who are not “fit and proper”

Executive Compensation

The board of directors must adopt a remuneration policy for themselves, management, and other employees whose activities have a significant impact on the bank’s risk profile. The policy must be reviewed regularly and take into account the size and complexity of the bank.

  • Remuneration policy adopted by board of directors
  • Policy reviewed regularly
  • Consideration of bank size and complexity

Change of Control and Transfers of Banking Business

A change of control in a Danish bank must be notified to the FSA and the acquirer must be deemed “fit and proper” by the authority. The acquisition of a qualifying interest triggers this requirement, which is also triggered if the shareholding is increased or the bank becomes a subsidiary.

  • Notification of change of control to FSA
  • Acquirer must be deemed “fit and proper”
  • Triggered by qualifying interest, increased shareholding, or becoming a subsidiary

Consumer Protection

Danish banks are required to treat all customers fairly, including consumers. This principle is supplemented by specific requirements depending on the business area. The acceptance of guarantees by banks and their content from non-commercial customers are specifically regulated.

  • Fair treatment of customers, including consumers
  • Specific requirements for different business areas
  • Regulation of guarantees from non-commercial customers

Deposit Protection

Ordinary deposits in Danish banks are covered by the Danish Guarantee Fund for Depositors and Investors up to €100,000 per customer. Certain other types of deposits are also covered up to €10 million.

  • Coverage of ordinary deposits up to €100,000
  • Coverage of certain other types of deposits up to €10 million

Data Security and Cybersecurity

Danish banks are subject to the General Data Protection Regulation (GDPR) and the Danish Act on Data Protection, which supplements the GDPR. The financial sector has invested heavily in ensuring a secure IT infrastructure, making it one of the most secure in Europe.

  • Compliance with GDPR and Danish Act on Data Protection
  • Secure IT infrastructure
  • High level of cybersecurity

In conclusion, Danish banks face strict governance requirements aimed at ensuring their stability and security. From risk management to consumer protection, data security, and cybersecurity, the regulations in place are designed to protect both banks and customers alike.