Denmark: Financial System Stability Assessment with reports on - IMF

39may be subject to more frequent full scale or focused inspections. Based on regularevaluations of risk, insurers may be subject to more frequent full scale or focusedinspections.18. The DFSA bases its system to assess the appropriateness of key functionaries on theassumption that it is the core responsibility of the senior management to ensure adequatepersonnel to be assigned to relevant tasks in the supervised companies. There was noevidence that this has led to severe problems so far. This approach, however, may well bejustified by the limited size of the market.19. A requirement that internal audit functions should be made compulsory for smallercompanies. Guidelines do not define clearly enough what the DFSA requires in the area ofinternal control. As guidelines does not expand on requirements from section 71 in the FBA,the subsequent control procedure may not cover all relevant issues. The importance of thefunction requires an executive order.Recommended Action Plan to Improve Observance of IAIS Insurance Core PrinciplesReference PrincipleConditions for Effective Insurance Supervisioni.e., CP 1Supervisory authorityi.e., CP 3Licensingi.e., CP 6Recommended ActionWhile good conditions for effective supervision are inplace, some more specific rule-based requirements shouldbe applicable to all companies. All professional resourcesare available and of high standards. Market infrastructureallows for an efficient management of the sector. A widerange of operational services are available to insuranceundertakings and allow them to focus on technical relatedaspects of the business. The regulation is very principlebased, but allows for a risk based supervision. Specifically,the requirements on organization of an undertaking inconjunction <strong>with</strong> the relevant guideline 9680 to guide thecompany to consider measures <strong>with</strong>out defining minimumstandards applicable to all companies.The potential interference of the executive branches in thebudget allocation should ideally be limited or restricted.Finanstilsynet has to agree on its budget <strong>with</strong> the Ministryof Economic and Business Affairs, although the expensesof the agency are covered by fees of the supervisedentities. Finanstilsynet is also subject to an annual budgetreduction program for the public sector. There is apossibility that resources could be allocated to regulationto the disadvantage of supervisory activity.Consideration should be given to also require that thesuitability of auditors and actuaries be assessed.Finanstilsynet pays specific attention to the licensingprocess. The risk-based approach requires a tighter andrather rule-based supervision <strong>with</strong>in the first years of thenewly established businesses. The ongoing supervisoryprocess does not demand comprehensive detailedoperating plans. As Finanstilsynet has distinctive rules forthe supervision of new entities, considerations should begiven to also require that the suitability of auditors andactuaries be assessed.