INSIGHTS

DANISH BANKING REGULATION LAW 

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This client  briefing has been prepared to provide our international clients with a overview of Danish banking laws and regulations. In addition, the comparative guide on Banking regulation permits an easy comparison with key points in law and practice in Denmark (Carsted Rosenberg), Germany (Squire Patton Boggs), Switzerland (Mercury Compliance), Luxembourg (Loyens & Loeff), United Kingdom (1 Crown Office Row), Ireland (Dillon Eustace) and the United States of America (Linklaters). 

Dr. Andreas Tamasauskas

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Michael Rosenberg

1. LEGAL FRAMEWORK

1.1. Which legislative and regulatory provisions govern the banking sector in Denmark

 

The main regulatory framework for the banking sector is the Danish Financial Business Act  (Consolidated act no. 1447 of 11 September 2020) which contains the overall regulation of all financial institutions (banks, mortgage credit institutions, insurance companies and investment firms) and inter alia regulates the permitted activities, licensing requirements, duties and responsibilities of financial institutions and their management as well as containing provisions on the supervision and the supervisory powers of the Danish Financial Supervisory Authority (the FSA).

 

The Financial Business Act as such is to a large degree based on EU legislation and implements a number of the key-directives in respect of the financial sector cf. para. 1.2 below.

 

The regulatory framework of the Financial Business Act is supplemented by a substantial number of executive orders issued by the Danish FSA which contain more specific and detailed provisions in relation to a number of key areas such as e.g. outsourcing, management and governance, recovery plans, remuneration, risk labelling of investment products as well as good business practices for financial institutions.

 

In addition to the above the Danish FSA has issued a number of guidance papers which further elaborate how the various provisions should be interpreted and applied in practice.

1.2. Which bilateral and multilateral instruments on banking have effect in Denmark? How is regulatory cooperation and consolidated supervision assured?

 

Danish banking regulation is to a large degree harmonised with the rest of the EU on the basis of numerous EU directives and EU regulations within the financial services area. Within the banking sector the EU directives have primarily been implemented into Danish law through incorporation in the Financial Business Act, while the EU regulations are directly applicable.

 

The Danish FSA cooperates with EU regulators in respect of cross-border banking activities with the home-state regulator being primarily responsible for the overall supervision with the host-state regulator having a secondary role in the supervision of the local branch, etc.

1.3. Which bodies are responsible for enforcing the applicable laws and regulations? What powers (including sanctions) do they have?

 

The primary regulator is the Danish FSA which overall objective is to ensure financial stability and confidence in the financial institutions and markets.

 

To this end the Danish FSA monitors compliance with inter alia the Financial Business Act partly through the issuance of executive orders and guidance notes and an on-going open dialogue with the financial institutions, partly through regular on-site inspections of the financial institutions.

References

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"works quickly and efficiently' and provides 'clear and concise' advice."

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2014, Legal 500, Banking & Finance

"extremely responsive and gives in-depth advice

2013, Legal 500, Banking & Finance

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In relation to the supervision of banks the Danish FSA’s primary focus is on capital adequacy and solvency requirements while compliance with other areas are monitored on the basis of a risk-based approach where high-risk areas are monitored more closely than low-risk areas.

 

The FSA has wide-ranging supervisory powers in relation to enforcement of the Financial Business Act and other supplemental legislation. The FSA can require banks to submit all information and documentation it deems necessary in order for it to monitor compliance with the Financial Business Act either in connection with an inspection or on a stand-alone basis. Such requests are in addition to the on-going regular reporting requirements in respect of inter alia solvency, liquidity, etc.

 

In addition, the FSA can order an investigation of a bank in respect of a particular area of interest either by the FSA itself or by external experts if deemed necessary by the FSA. The costs of such investigations are for the account of the relevant financial institution.

 

Banks which are found to be in severe or repeated breach of the provisions of the Financial Business Act are normally put under so-called increased supervision which among other things implies a more onerous reporting regime.

 

The FSA has a number of sanctions for non-compliance with the Financial Business Act. Violations of the Financial Business Act are normally sanctioned by public reprimands. In severe cases administrative fines may be issued. If the violation is on-going the FSA will order the relevant bank either to refrain from the activities which violate the Financial Business Act or otherwise order the bank (typically within a certain timeframe) to take corrective actions.

 

Ultimately the FSA may remove the management of the bank by withdrawing their 'fit and proper' approval or withdraw the banking license.

 

1.4. What are the current priorities of regulators and how does the regulator engage with the banking sector?

 

In general capital adequacy and solvency requirements are always a top priority for the FSA. During the Covid-19 crisis the FSA has in particular focused on whether banks hold sufficient capital to withstand the current economic downturn which is expected to lead to higher losses for the banks.

 

Other top priorities are anti-money laundering, outsourcing, IT security and an increased focus on the viability of certain banks’ business models in a low-interest rate environment. 

 

The FSA is proactively engaging with the banking sector, both formally through its regular inspections, through the issuance of executive orders, etc. and informally by attending sector specific seminars, by giving speeches, etc.

 

2. FORM & STRUCTURE

 

2.1. What types of banks are typically found in Denmark?

 

The Danish banking sector is made up of banks, savings banks and mortgage credit institutions.

 

Banks are organised as limited liability companies, are often publicly listed, and provide finance for everything from private individuals over small businesses to large Danish and international corporations. Traditionally, Danish banks have been organised as universal banks and therefore, there are no specific distinctions between commercial banking and investment banking (although the investment banking activities for practical purposes are often separated into special departments or divisions within the banks). 

 

Historically, savings banks have been owned by their own customers, and they have traditionally provided finance for private persons and small businesses within a certain area. Therefore, they often have a strong local or regional presence. However, within the last few years, a number of savings banks have been converted into limited liability companies and have been listed in order to make their business model more viable and their access to capital easier.

 

Mortgage credit institutions are essentially 'niche banks' in the sense that they only finance real estate. Unlike banks, they do not fund themselves through deposits or loans etc. but solely through issuance of mortgage-backed bonds taking the form of covered bonds. The stable funding enables mortgage credit institutions not only to offer very attractive interest rates, but also to offer fixed-rate mortgage loans with maturities of up to 30 years. The Danish mortgage system offers one of the lowest interest rates to borrowers across Europe and the lowest borrowing costs for the first priority tranche of the property value due to Denmark’s unique mortgage credit system. The combination of a tightly regulated framework, credit & risk management and wholesale funding through a pass-through system provides close to capital markets funding conditions through the issuance of individually matched bonds for each individual borrower. The high liquidity and the attractiveness of the bonds due to their high security level ensure borrowers very low and competitive prices.

 

2.2. How are these banks typically structured?

 

Banks and mortgage credit institutions are organised as limited liability companies.

 

Savings banks have traditionally been organised as independent institutions owned by their own customers. While there are still some traditionally savings banks left there has been an increased trend for them to convert into limited liability companies although some of them, for historic reasons, have retained the 'savings bank' label as part of their name.

 

A very small number of credit institutions are still organised as credit co-operatives under special legislation. This will most likely disappear as time passes by given that their governance and funding structure in practice limited their size.

 

2.3. Are there any restrictions on foreign ownership of banks?

 

There are no explicit restrictions on foreign ownerships of banks. However, any shareholder acquiring a so-called 'qualifying interest' (i.e. 10 per cent. or more or the shares or voting rights or any other shareholding that gives the shareholder a material influence over the bank’s management) must be 'fit and proper' approved by the FSA.

 

As part of the 'fit and proper' approval the FSA will inter alia assess whether an acquisition of a qualifying interest will lead to the bank becoming part of group structure (e.g. by becoming a subsidiary) and whether such structure still enables the FSA  to supervise it effectively and whether the FSA can exchange and cooperate with the relevant competent authority of the parent undertaking.

 

Where the acquirer is an EU-regulated entity or an entity regulated by a competent authority in a country with which the EU has a cooperation agreement in place, this will be less of a concern. If, however the acquirer is situated in a third country the 'fit and proper' approval will be subject to more scrutiny.

 

2.4. Can banks with a foreign headquarters operate in Denmark on the basis of their foreign licence?

 

EU and EEA banks can in general provide banking services in Denmark either on a cross-border basis or through a Danish branch office under the so-called EU passporting regime. The relevant bank must be duly licensed in its home country and its home-state regulator must be notified accordingly, which in turn will notify the Danish FSA.

 

The bank will continue to be subject to the supervision of its home-state regulator, but the Danish FSA will monitor the branch in respect of conduct of business regulation and will also monitor the branch in order to assist the home-state regulator in its supervision.

 

Banks from non-EU/EEA countries are not able to rely on the EU passporting regime and will either need to establish a branch or a full subsidiary if the desire to offer the full spectrum of banking services.

 

3. AUTHORISATION

 

3.1. What licences are required to provide banking services in Denmark? What activities do they cover?

 

In order to provide traditional banking services (deposit taking and lending) a banking license is required pursuant to section 7 of the Financial Business Act.

 

A Danish banking license covers the following activities:

 

  1. Acceptance of deposits and other repayable funds.

  2. Lending, including:

    • consumer credit,

    • mortgage credit,

    • factoring and discounting,

    • commercial credits (including forfaiting),

  3. Financial leasing.

  4. Payment services covered by Annex 1 of the Payments Act (lov om betalinger).

  5. Issuing and administration of other means of payment (for example travellers' cheques and bankers' drafts) insofar as this activity is not covered by para. (d) above.

  6. Guarantees and collateralisation.

  7. Dealing for own account or for the account of clients in

    • money market instruments (cheques, bills, certificates of deposit, etc.),

    • foreign exchange,

    • financial futures and options,

    • exchange and interest-rate instruments,

    • transferable financial instruments.

  8. Participation in issuing financial instruments and provision of related services.

  9. Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and acquisitions.

  10. Money broking.

  11. Portfolio management and advice.

  12. Safekeeping and administration of financial instruments.

  13. Credit reference services.

  14. Safe custody services.

  15. Issuance of electronic money.

 

The above list sets out the permitted activities for a bank holding a Danish banking license. EU/EEA banks which have been passported into Denmark are subject to a slightly different list of permitted credit institution activities cf. Annex 2 of the Financial Business Act.

 

3.2. What requirements must be satisfied to obtain a licence?

 

The applicant must fulfil the following requirements in order to obtain a banking license:

 

  1. A paid in share capital of at least EUR 5,000,000;

  2. the board of directors and the management must be deemed to be 'fit and proper';

  3. shareholders holding a 'qualifying interest' (cf. question 2.3 above) must equally be deemed to be 'fit and proper';

  4. the absence of any close links between the applicant and any undertakings or persons which hold a substantial stake in the applicant which could otherwise complicate or hinder the supervision by the FSA;

  5. the absence of any third country legislation applicable to an undertaking or person with close links to the applicant which would otherwise complicate or hinder the supervision by the FSA;

  6. appropriate administrative procedures and controls;

  7. the applicant has its headquarters and registered office in Denmark.

 

3.3. What is the procedure for obtaining a licence? How long does this typically take?

 

In order to obtain a banking license, the applicant must submit a written application to the FSA. There is no prescribed format for the application, but it must contain all information and documentation necessary in order for the FSA to assess whether the requirements for obtaining a banking license are met. In general, the application should cover the following:

 

  • The applicant’s articles of association and minutes from the incorporation for the company;

  • Information about the share capital and evidence of that its has been fully paid-in;

  • The opening balance sheet and budgets for the first 3 years;

  • Description of the business model/business plan;

  • Information on the IT structure and statements from the applicant accountant in respect of IT etc.;

  • Rules of procedure for the board of directors and management instruction;

  • Written procedures for each the relevant activities, risk management, conflicts of interest, internal controls, IT security, etc.

  • Name of the proposed auditors of the applicant;

  • Time table for the application and the start-up of the permitted activities;

  • Fit and proper applications for the board of directors, management and shareholders with qualifying interest (or information on the 20 largest shareholders if no single shareholder has a qualifying interest).

 

The FSA has 6 months to process the application assuming that the application contains all necessary information and documentation as the deadline will otherwise be postponed until all information is at hand.

 

4. REGULATORY CAPITAL & LIQUIDITY

 

4.1. How are banks typically funded in Denmark?

 

Banks are normally funded through a combination of share capital supplemented by various forms of tier 2 capital.

 

4.2. What minimum capital requirements apply to banks in Denmark?

 

The minimum capital requirement for banks is a paid-in share capital of EUR 5,000,000.

 

4.3. What legal reserve requirements apply to banks in Denmark?

 

The board of directors and the management of a bank must at all times ensure that the bank holds sufficient capital to cover its risks (credit risk, market risk, operational risk etc.). As part of this assessment they are inter alia required to calculate the bank’s individual solvency requirement and hold sufficient capital to cover this requirement. The FSA may increase the individual solvency requirement and order to bank to increase its own funds if the FSA deems that the solvency requirement set by the bank is insufficient to cover its risk exposure.

 

5. SUPERVISION OF BANKING GROUPS

 

5.1. What requirements apply with regard to the supervision of banking groups in Denmark?

 

Banking groups are supervised on a consolidated basis in accordance with the provisions of the Financial Business Act and on the basis of the Capital Requirements Regulation.

 

If the parent company in the banking group is situated in another EU/EEA country the Danish FSA will primarily supervise the Danish branch or subsidiary and will otherwise assist the home-state regulator in the overall supervision of the banking group.

 

5.2. How are systemically important banks supervised in Denmark?

 

Systemic Important Financial Institutions (SIFIs) and Global Systemic Important Financial Institutions (G-SIFIs) are subject to the special regulatory regime in Chapter 19 of the Financial Business Act. Chapter 19 contains detailed provisions on how SIFIs and G-SIFIs are identified (i.e. basically the qualification criteria) as well as the specific requirements that apply if a bank qualifies as being a SIFI. The requirements inter alia include the following:

 

  • An obligation to maintain a specific SIFI capital buffer;

  • An obligation to identify key-personel;

  • An obligation to establish committees on remuneration, nomination and risk;

  • Limits on the number of other board and management positions that a board member in a SIFI/G-SIFI may have besides his or her current position;

  • Various restrictions and requirement in relation to bonus schemes and variable remuneration.

 

5.3. What is the role of the Danish Central Bank?

 

The main objectives of the Danish central bank (Nationalbanken) are to contribute to ensuring:

 

  • stable prices;

  • safe payments; and

  • a stable financial system.

 

The objectives are met by committing to a fixed-exchange-rate policy vis-à-vis the euro which enables the central bank to keep the inflation low (by a combination of monetary and exchange-rate policies), by acting as a banker for all Danish banks which secures that interbank payment can be settled in a safe manner and by overseeing and assessing the financial stability in Denmark

 

6. ACTIVITIES

 

6.1. What specific regulations apply to the following banking activities in Denmark?:

 

(a) Mortgage lending?

 

Mortgage credit institutions which provide the bulk of all mortgage lending are regulated by the Financial Business Act as such. Mortgage lending in itself is – to the extent that the mortgage loans are provided by mortgage credit institutions – regulated by the Consolidated Act no. 1188 dated 19 September 2018 on mortgage loans and mortgage bonds (the "Mortgage Loan Act"). The Mortgage Loan Act partly regulates the mortgage loans themselves (security, maturity and repayment, loan-to-value, valuation of the properties), partly the issuance of the mortgage bonds which funds the mortgage loans.

 

(b) Consumer credit?

 

Consumer credit is regulated by the Consolidated Act no. 817 dated 6 August 2019 on credit agreements (the "Credit Agreement Act"). The Credit Agreement Act implements a number of EU directives within the consumer credit sphere and contains detailed provision on especially consumer credit agreement, but also more general provision on title-retention arrangements in connection with the provision of credit.        

 

(c) Investment services?

 

Investment services are primarily regulated by the Financial Business Act which regulates investment firms as such as well as the executive order on investor protection in relation to the provision of investment services etc.

 

(d) Payment services and e-money?

 

Payment services and the provision of such services are regulated by the Consolidated Act no. 1719 dated 27 November 2020 om payments (the "Payments Act") which implements the directive on payment services in the internal market (EP/EC Directive 2015/2366) and sets out the license requirements etc. in relation to e-money and payments services.

 

7. REPORTING, ORGANISATORIAL REQUIREMENTS, GOVERNANCE & RISK MANAGEMENT

 

7.1. What key reporting and disclosure requirements apply to banks in Denmark?

 

Banks are subject to a number of ongoing reporting requirements in respect of their capital, solvency etc. and may be subject to additional reporting requirements if deemed necessary by the Danish FSA.

 

In addition, banks are required to disclose summarised versions of the inspection reports from the Danish FSA on their website once an inspection has been concluded. The summaries must inter alia contain the FSA’s key findings, any orders or reprimands issued by the FSA as well as certain risk information.

 

7.2. What key organisational and governance requirements apply to banks in Denmark?

 

Pursuant to section 70 of the Financial Business Act the board of directors of a bank are overall responsible for the management of the bank and the supervision of the management. Their primarily role and responsibility are to:

 

  • Specify which business activities the bank should be engaged in;

  • Identity and quantify significant risk that the bank is exposed to and determine the banks risk profile;

  • Adopted policies on how the bank should manage its business activities and the associated risk;

  • Adopt a diversity policy for the board of directors which ensures sufficient diversity as to qualifications and competences among the board members.

 

In addition to the above more general duties the board of directors must issue detailed written guidelines to the management on how these policies are to be implemented in the day-to-day management.

 

Section 71 of the Financial Business Act specifies how the bank should be organised on a general level. In this connection section 71 inter alia requires that the bank must have:

 

  • a clear organisational structure with a well-defined, transparent and consistent division of responsibilities,

  • good administrative and accounting practices,

  • written procedures for all significant areas of activity,

  • effective procedures to identify, manage, monitor and report the risks, the undertaking is or can be exposed to,

  • the resources necessary for proper carrying out of its activities, and appropriate use of these,

  • procedures with a view to separating functions in connection with management and prevention of conflicts of interest,

  • full internal control procedures,

  • adequate IT control and security measures, and

  • the staff and financial resources which are necessary to secure sufficient possibilities of introduction and continuing professional development courses for members of the board of directors or board of management.

 

Both section 70 and 71 are supplemented by an executive order on management of governance of banks issued by the FSA.

 

7.3. What key risk management requirements apply to banks in Denmark?

 

Risk management is an integral part of the overall governance requirements cf. section 70 of the Financial Business Act. In practice banks are required to established a risk management function and appoint a person who is overall responsible for all risk management.

 

7.4. What are the requirements for internal and external audit in Denmark?

 

All banks are required to have external auditors which are required to audit the banks financial statements. In addition, banks which for two consecutive financial years have had 125 or more full time employees are also required to have an internal audit. Smaller banks may also have an internal audit if decided by the board of directors.

 

8. SENIOR MANAGEMENT

 

8.1. What requirements apply with regard to the management structure of banks in Denmark?

 

Danish banks operate with a two-tier management system consisting of (i) a supervisory board of directors (Bestyrelse) which are overall responsible for the management of the bank on a strategic level in addition to having a control and oversight responsibility and (ii) the management (Direktion) – sometimes referred to as the management board – which is responsible for the day-to-day management of the bank.

 

8.2. How are directors and senior executives appointed and removed? What selection criteria apply in this regard?

 

The board of directors are elected by and can be removed by the shareholders of the bank. The managing director of a bank is appointed and removed by the board of directors.

The FSA may require that the board of directors remove a senior executive if he or she is no longer deemed to be 'fit and proper' and may also require that a board member resigns in he or she is no longer 'fit and proper'.

 

8.3. What are the legal duties of bank directors and senior executives?

 

The bank management is responsible of the day-to-day management of the bank in accordance with the policies and guidelines laid down by the board of directors.

 

8.4. How is executive compensation in the banking sector regulated in Denmark?

 

The board of directors are required to adopt a remuneration policy which applies to the board of directors, the management as well as other persons whose activities have a significant impact on the bank’s risk profile. The remuneration policy which must be reviewed with regular intervals and must contain appropriate principles for the remuneration taking into account the size of the bank, the complexity, conflict of interest issues etc. In addition  the Financial Business Act and the relevant executive order on remuneration in banks contains fixed restrictions on the variable part of the overall renumeration package which in general must not exceed 50%/100% of the overall pay package for board members and members of management (50%) or persons whose activities significantly affect the bank’s risk profile (100%).

 

9. CHANGE OF CONTROL & TRANSFERS OF BANKING BUSINESS

 

9.1. How are the assets and liabilities of banks typically transferred in Denmark?  

 

The reason for the transfer determines how assets and liabilities are transferred. If the bank is distressed, the bank will be assumed by the Financial Stability Company to ensure a controlled dissolution in lieu of an outright bankruptcy (see further chapter 14 below). The FSA will ordinarily issue a notice to the distressed bank on a Friday afternoon with a view to have the bank's assets transferred by Sunday evening, to avoid 'bank run'. A transfer to another bank of all or part of the distressed bank's activities will be the primary objective and only if no market-based solution can be found will the dissolution process be initiated.

 

In the ordinary course of events, outside a distressed scenario, a transfer of banking activities can take place by way of merger or acquisition. Whether an asset or a share deal is chosen depends on the specific circumstances of the acquisition. The transfer will be governed by the provisions of the Financial Business Act and will require close coordination with the regulator to obtain approval, cf. section 204 of the act. Approval must be notified within a two-months' timeframe and can e.g. be rejected on ordre public grounds, cf. section 204(3) of the act.

 

A successful outcome will depend on the contractual framework governing the bank's activities, i.e. are there any clauses on the hybrid tier 2 capital that would require prior noteholder consent. In practice, convening a meeting of the noteholders to obtain consent will often be impractical or futile and mergers have taken place without prior consent of the noteholders despite the theoretical risk of a technical cross-default.   

 

9.2. What requirements must be met in the event of a change of control?

 

A change of control must be notified to the FSA and the acquirer must be deemed to be 'fit and proper' by the FSA. The requirement to be 'fit and proper' approved is triggered by an acquisition of a 'qualifying interest', cf. item 2.3. An additional 'fit and proper' approval requirement is triggered if the shareholding etc. is subsequently increased to 20%, 33% or 50% of if the bank otherwise becomes a subsidiary of the acquirer.

 

10. CONSUMER PROTECTION

 

10.1. What requirements must banks comply with to protect consumers in Denmark?

 

In general banks must treat all their customers fairly including consumers, cf. the general standard of good business practice in section 43 of the Financial Business Act. This general principle is supplemented by a number of more specific requirements depending on the specific business area, e.g. with consumer credit, financial services etc.

 

The acceptance of guarantees by banks and the content of such guarantees from non-commercial customers (i.e. consumers and private individuals) is specifically regulated in the Financial Business Act.

 

10.2. How are deposits protected in Denmark?

 

Ordinary deposits are covered by the Danish Guarantee Fund for Depositors and Investors up to EUR 100,000 per customer. Certain other types of deposits, e.g. deposits in connection with real estate deposits are covered up to EUR 10,000,000.  

 

11. DATA SECURITY & CYBER SECURITY

 

11.1 What is the applicable data protection regime in Denmark and what specific implications does this have for banks?

 

Danish banks are in general subject to the GDPR regulation as well as the Danish act no. 502 dated 23 May 2018 on data protection which supplements the GDPR regulation.

 

11.2. What is the applicable cybersecurity regime in Denmark and what specific implications does this have for banks?

 

While there has been an increase in cyberattacks against banks during the past couple of years the Danish cybersecurity in the financial sector is still considered to be one of the best-in-class in Europe. The Danish financial sector has – partly aided by the Danish central bank – invested considerable resources in providing a secure and efficient IT infrastructure in financial sector.

 

The adoption across the board of a digital signature solution for all citizens and businesses has significantly increased the use of electronic transactions and solutions. 'NemID' is a common secure login to internet services, to be used for online banking, self-service or obtaining information from the public authorities or engaging with one of the many businesses that use NemID. The official digital signature is combined with a statutory email inbox to be used by all citizens and businesses. This will also be used for communication with bank customers. The result is a high degree of digitalisation which in turn resulted in a high degree of resilience during the Covid-19 crisis as most transactions and communication could be maintained without significant interruption. Banks will therefore have to apply the national NemID solution for online banking both for businesses and citizens.

 

12. FINANCIAL CRIME & BANKING SECRECY

 

12.1 What provisions govern money laundering and other forms of financial crime in Denmark and what specific implications do these have for banks?

 

Danish banks are subject to provision of the Consolidated Act no. 1782 dated 27 November 2020 on Measures to Prevent Money Laundering and Financing of Terrorism (the AML Act). The AML Act requires banks to assess the risk of being used to launder money or finance terrorism as well as to implement appropriate risk management procedures. As part of these procedures banks are required to adopt strict 'know-your-customer' procedures as well as to monitor its customers transaction and investigate and potentially report suspicious transactions to the Public Prosecutor for Serious Economic and International Crime. 

 

12.2. Does banking secrecy apply in Denmark?

 

Yes, pursuant to section 117 of the Financial Business Act, financial institutions (including banks) may not divulge or otherwise utilise confidential information about their customers. The banking secrecy principle is subject to certain exemptions (consent, erroneous transfer of money, disclosure of certain information for administrative and risk management purposes etc.) and is subject to overriding provisions of law (disclosure of information to tax authorities etc.).  

 

13. COMPETITION

 

What specific challenges or concerns does the banking sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at banks?

 

The Danish banking sector is quite concentrated with a few banks having a dominant position which could potentially give rise to concerns. However so far there is no evidence of any particular issues in that respect.

 

14. RECOVERY, RESOLUTION & LIQUIDATION

 

14.1. What options are available where banks are failing in Denmark?

 

Pursuant to section 71a of the Financial Business Act banks are required to prepare and maintain recovery plans which inter alia must contain a broad range of recovery models which can be implemented if the bank becomes distressed. The recovery plan must be submitted for approval to the FSA. If a bank is failing and if no alternative measures are likely to prevent a failure of the bank, the Danish Financial Stability Company may resolve the situation by intervening. The resolution tools available to the bank are:

 

  • A sale of the bank or its assets;

  • The establishment of a bridge institute which will acquire all or part of the assets and liabilities of the relevant bank;

  • A separation of performing and non-performing assets of the bank;

  • A bail-in.

 

14.2. What insolvency and liquidation regime applies to banks in Denmark?

 

A bank may either be liquidated by way of a solvent liquidation on the shareholders or (in some instances) the FSAs initiative pursuant to the Financial Business Act and the Companies Act or it may be liquidated or reconstructed through a bankruptcy or reconstruction procedure pursuant to the Financial Business Act and the Bankruptcy Act.

 

15. TRENDS & PREDICTIONS

 

15.1. How would you describe the current banking landscape and prevailing trends in Denmark? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

 

For the past couple of years there has been an increased focus on compliance, bank management and most recently even on the behaviour and culture in banks and in the management. The expectation is that this trend will continue.

 

To the same end the FSA has increased its focus on the 'fit and proper' approval of board members and members of the management. Most recently the FSA has issued a set of very detailed recommendations in respect of its 'fit and proper' approval of senior management, including detailed guidelines on the required level of experience, seniority, etc. of any potential members of the senior management.

 

15.2. Does Denmark regulate cryptocurrencies? Are there any legislative developments with respect to cryptocurrencies or fintech in general?

 

There is no specific law on cryptocurrencies as they are instead governed by the general financial regulatory regime. The Danish FSA has however set-up various workshops within the Fintech area working together with various Fintech start-ups in respect of the various regulatory requirements, including a sandbox solution. In general, the high degree of digitalisation in Danish society has resulted in a fertile ground for cryptocurrencies, but always tempered by the mandatory requirements for transparency, taxation and the prevention of money-laundering and financing of terrorism.

 

16. TIPS & TRAPS

 

What are our top tips for banking entities operating in Denmark and what potential issues would we highlight?

 

The FSA actively encourages an open dialogue with the financial sector and the entities which are subject to its supervision. Any banks entering into the Danish market should relatively early in the process reach out to the FSA and present itself and its business plans in Denmark. While such an early interaction is not required from a strict legal perspective if often smoothen the subsequent application process.

17. COMPARATIVE REVIEW

The Mondaq Comparative Guides provide an overview of some of the key points of law and practice on banking regulation and allow you to compare regulatory environments and laws across multiple jurisdictions, incl.:

 

  • Denmark (Carsted Rosenberg)

  • Argentina (Baker McKenzie)

  • Ireland (Dillon Eustace)

  • Canada (Gowling WLG)

  • Germany (Squire Patton Boggs)

  • Luxembourg (Loyens & Loeff)

  • Portugal (Sofia Leite Borges & Associados)

  • Switzerland (Mercury)

  • Turkey (Aktay Legal)

  • United Kingdom (1 Crown Office Row)

  • Unites States of America (Linklaters)

Law stated as of 1 May 2021

 

 

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