Denmark: Financial System Stability Assessment with reports on - IMF

40Suitability of personsi.e., CP 7Internal controli.e., CP10Market Analysisi.e., CP11On-site inspectioni.e., CP 13Reference PrinciplePreventive and Corrective Measuresi.e., CP 14Enforcement or sanctionsi.e., CP 15Group-wide supervisioni.e. CP 17Recommended ActionConsideration should ideally be given to apply fitand-properrequirements to a broader range of seniormanagement. Finanstilsynet bases its system to assess theappropriateness of key functionaries on the assumptionthat is the core responsibility of the senior management toensure adequate personnel to be assigned to relevant tasksin the supervised companies. Nevertheless, the fitand-properrequirements are applied consistently. Therewas no evidence that this has led to severe problems so far.However, this may be justified by the limited size of themarket.The requirements to establish internal audit functionsshould be made compulsory for smaller companies.Guideline 9680 does not sufficiently clearly define whatFinanstilsynet requires in the area of internal controls. Asthe guideline does not expand on requirements fromsection 71 FBA, the subsequent control procedure may notcover all relevant issues. The importance of this functionrequires an executive order.Finanstilsynet should ideally enlarge its activities onmarket analysis and obtain information, including onmacro economic developments, which would enableforecasting market trends that allow for projections ofpotential impacts on the sector.The risk assessment should also take into account the sizeof the company to better balance risk sensitivity andpotential financial impact for the market. Larger lifecompanies should be subject to a full inspection on afour-year cycle.Consideration should be given to have a broader range ofgraduated sanctions. Finanstilsynet possesses all means toensure that shortfalls or misuse of regulation will not besupported. The range of sanctions, however, is ratherbiased to drastic measures and could be of more variety torespond to less severe shortfalls. It can be assumed that the<strong>with</strong>drawal of license is not an adequate response to allnoncompliances. Sanctions will not be published, neitheron company level nor on country level. During 2002−05,there were in total six noncompliances reported to theprosecutor. In 2005 (until November), 169 orders had beenissued <strong>with</strong> a view to ensuring corrective actions.Finanstilsynet should have means to address managementproblems directly. Currently, Finanstilsynet does notpossess the power to dismiss controlling owners andmanagers or to restrict their powers. Issuing of anexecutive order should be considered.The simultaneous assessment of major risks in allcountries of the respective Group impedes unsupervisedrisk transfer. Finanstilsynet supervises three financialconglomerates <strong>with</strong> activity in the Danish market. Riskassessment of the Danish business takes place in jointmeetings of all involved parties <strong>with</strong>in Finanstilsynet. TheMoU <strong>with</strong> Nordic countries facilitates a consistentapproach across borders.