Denmark’s Financial Institution Risk Management Framework Under Scrutiny
======================================================
A new framework aimed at preventing and reducing systemic financial risks that could impact Denmark’s economic development has been established under the country’s Financial Business Act. The Systemic Risk Council, an advisory body, will focus on monitoring the entire financial system to identify potential threats before they become major issues.
The Systemic Risk Council
The council is composed of experts from various fields and will be responsible for:
- Identifying and monitoring systemic risks in Denmark’s financial sector
- Making statements on these risks
- Issuing warnings about their build-up
- Recommending initiatives to mitigate them
- Consulting with international authorities such as the European Systemic Risk Board (ESRB)
Monitoring Activities
The council will examine how risks develop over time and across sectors, including areas that have only recently been regulated or those that are not yet closely monitored. The body will also collect information from various sources to contribute to its monitoring activities.
Comments on Financial Matters
The council’s comments on financial matters can take three forms:
- Observations: implies a risk of systemic financial risks building up
- Warnings: indicates clear indications of such risks
- Recommendations: specific proposals for initiatives to mitigate or counter identified risks
Warnings and recommendations will be directed towards the Danish Financial Supervisory Authority and, if relevant, the government.
Decision-Making Process
The council’s decisions will be made by simple majority vote among its members, with the chairman having the casting vote in the event of a tie.
Accountability
The council’s framework is designed to ensure that warnings and recommendations are addressed in a timely manner. Recipients are required to take action or provide explanations for their inaction within three months. The body will also assess whether the actions taken or not taken by recipients are adequate.
Conclusion
Denmark’s Systemic Risk Council is expected to play a crucial role in identifying and mitigating systemic financial risks, ensuring the stability of the country’s financial system and promoting sustainable economic growth.