Denmark: Financial System Stability Assessment with reports on - IMF

35Authorities’ responseWith a few exceptions, we are broadly in agreement <strong>with</strong> the IMF assessment team.As a follow-up to the recommendations by the IMF assessment team, consideration will begiven to establish the DFSA as an independent institution by providing the agency a statutorybasis in the legislation. Correspondingly, a separation of its regulatory and supervisorybudget will be considered. In our view, how the budgetary procedure is organized is not themost important issue—instead it is essential to ensure that adequate funds are available at alltimes. A more distinct division of the budget, where the resources allocated to thesupervisory activities are separated, would also give a more clear and transparent overview.It should be noted, however, that the DFSA has been allocated increased resources as aconsequence of the Capital Requirement Directive and the Third Money-LaunderingDirective. The budgetary procedure is a political decision.Also note that the DFSA is developing the use of stress tests for monitoring the soundness offinancial institutions. The DFSA will take the mission’s comments into consideration whenfurther developing these measures. The DFSA, however, would like to note that a build up ofthe stress testing capacity, such as suggested by the IMF, would require an increase in theresources of the DFSA.We would also like to note that the new Basel II capital requirements could for institutionswhich apply for the use of the internal rating based approaches for credit risk and advancedmeasurement approach for operational risk imply potentially large decreases in the minimumcapital requirements. To ensure that any large potential decrease in capital requirement willbe gradual, the Danish regulation has included floors that set the maximum decrease incapital requirements for institutions using the advanced methods in 2007, 2008, and 2009 inaccordance <strong>with</strong> the EU Capital Requirement Directive. Furthermore, if other institutions,which are not covered by floors, should experience large decreases in minimum capitalrequirements that do not reflect the risks that the institution is subject to, the DFSA will havethe possibility of setting additional capital requirements in individual cases.The DFSA will consider issuing executive orders instead of guidelines. The benefits of suchexecutive orders will have to be viewed against the cost in administration for the supervisedentities, but there are definitely supervisory benefits in upgrading the guidelines tolegislation. Specifically regarding the recommendation to extend the field of our “fit-andproper”regulation to all key staff, and not just board members: we generally concur that itcould be useful, if the DFSA had the possibility to take action towards unfit staff members.However, it also seems an unnecessary burden on the financial businesses if such key staffmembers should have a “fit-and-proper” approval in advance. Such measures would alsoclaim a considerable part of resources from the DFSA, and it is, in the DFSA’s opinion,doubtful whether the outcome will exceed the costs.