Denmark: Financial System Stability Assessment with reports on - IMF

3210. The DFSA may face resource constraints. Although its costs are fully born by thesupervised institutions, revenues and expenses are included in the fiscal budget and henceapproved by the legislature. The adoption of International <strong>Financial</strong> Reporting Standards(IFRS), the implementation of Basel II may well reduce the capital cushion of many banksand hence demand closer monitoring, which will be resource-demanding and may needreprioritizing.11. <strong>Denmark</strong> has a deposit insurance system, the Guarantee Fund for Depositors andInvestors, which covers deposits of up to DKr 300,000 per depositor. Certain specialcategories of deposit are, however, covered in full. Membership is compulsory for all creditinstitutions.General preconditions for effective banking supervision12. The preconditions for effective supervision are largely in place. As a member of theEU since 1973, EU directives have been adopted and implemented in financial legislation.The public governance framework is basically sound. IFRS were adopted for all listedcompanies, and by all financial enterprises, effective January 2005. This has resulted in adecline in provisions by many banks. The authorities describe the change as moving from aconservative provisioning policy to a neutral provisioning policy. The authorities have takensteps to improve corporate governance and disclosure. In 2001, the Nørby Committee wasestablished to make recommendations on measures to improve corporate governance and alllisted companies must now explain if they deviate from these recommendations.Main findings13. Objectives, autonomy, powers, and resources (CP 1). The DFSA is the soleauthority responsible for supervision of the financial sector. 25 There is no visible evidence ofany undue government or industry interference in the work of the DFSA. However, theDFSA is an institution for which the Minister of Economic and Business Affairs isresponsible to Parliament. This could conceivably impede the DFSA’s autonomy, because itcould not be excluded that the Minister of Economics and Business Affairs might overruledecisions made by the DFSA on the advice of the <strong>Financial</strong> Business Council <strong>with</strong> regard tothe issuance of executive orders. While in general it is not usual for agencies in the Danishpublic sector to be established by specific laws, such a law could ensure the DFSA’s role asan autonomous supervisory authority and would make the agency’s position moretransparent. Although the DFSA also has, in general, adequate freedom to deploy its bankingsupervision resources, the Authority’s budget is incorporated into the overall budget of thegovernment and subject to passage of the annual Finance Act.25 The legislation and prudential regulation for banks does not automatically cover the Faeroe Islands andGreenland. The legislation and regulation is entered into force separately in these parts of the countryapproximately one year after the changes enter into force in <strong>Denmark</strong>.