Denmark: Financial System Stability Assessment with reports on - IMF

42Authorities’ responseWe are broadly in agreement <strong>with</strong> the assessment team of the IMF, but would like toelaborate on the following issues.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.The fit-and-proper test in place in <strong>Denmark</strong> is compliant <strong>with</strong> the EU directives. In view ofthis assessment, we will consider the possibility to adjust the regulation so that the DFSAwill be able to take measures in case we discover that a person employed in one of theseadditional functions is not fit-and-proper. In our view, it would not be cost efficient to extendthe fit-and-proper test to those functions, as it would increase the administrative burden ofthe industry as well as require the DFSA to allocate resources to this task. Furthermore, themanagement has the incentive to hire persons, who are suitable for the job. Thus from acorporate governance point of view, it seems preferable that the management of the companyis responsible for hiring persons, who are fit-and-proper, and that the DFSA has the means toact in case it discovers that a person was not fit-and-proper after all.The IMF team finds that the DFSA does not possess the power to dismiss controlling ownersand managers or to restrict their powers in case they are not fit-and-proper. We would like tostress that the DFSA is able to abolish the voting right of shareholders in case a qualifiedowner counteracts the sound and safe operation of the company. In such cases the DFSA mayalso give specific instructions to the firms. Hence we do not see a need for further measures.The IMF team finds that some rules are set out in guidelines rather than executive orders andthat the requirements for companies’ operational plans, internal control systems, riskassessment frameworks, and insurance activities should be more detailed. The IMF team alsosuggests that it should be compulsory for smaller companies to have an internal auditfunction. We would like to reiterate that in <strong>Denmark</strong>, the internal auditors participate in thefinancial auditing of the company. An internal auditor is not a part of the control system ofthe company. Therefore we do not see a need for a compulsory internal audit function insmall companies. We realize that the Danish system differs from other jurisdictions in thisregard. In addition, it is our experience that it may be difficult for small firms to attractinternal auditors. Nevertheless, we will consider to make the requirements more detailed andto change the guidelines into an executive order. However, the benefits will have to beviewed against the general intention to keep the administrative burden on the industry at thelowest level possible.