Denmark: Financial System Stability Assessment with reports on - IMF

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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.
43 ANNEX IVREPORT ON THE OBSERVANCE OF THE CORE PRINCIPLES FOR SYSTEMICALLYIMPORTANT PAYMENT SYSTEMS1. The assessment of the observance of the Core Principles (CPs) for <strong>System</strong>icallyImportant Payment <strong>System</strong>s (CPSIPS) developed by the Committee for Payments andSettlement <strong>System</strong>s (CPSS) dated January 2001, was carried out as part of the first FSAPmission to <strong>Denmark</strong>, November 7–18, 2005. 282. Two payment systems are declared systemically important by the Danish authorities:(i) KRONOS, the RTGS system for large-value payments; and (ii) Sumclearing, amultilateral netting system for the clearing and settlement of retail payments. Sumclearing isdefined as systemically important primarily because it is the only retail payment system in<strong>Denmark</strong> and it also handles relatively large payments. The infrastructure for retail paymentshas a “pyramid shaped structure” in the sense that it consists of two sub-clearings and theirresults (sum totals) are netted in the Sumclearing. In this assessment, the infrastructure forretail payment is seen as a complex and interdependent set of procedures encompassing thewhole common infrastructure that is used for initiating and processing to the final settlementand reporting. This infrastructure is described in the Aftalebog and the Håndbog forBetalingsformidling (payment system manual) of the Danish Bankers Association (DBA), theowner of Sumclearing.3. The assessment was performed using the assessment methodology as described in theGuidance Note for Assessing Observance of Core Principles for <strong>System</strong>ically ImportantPayment <strong>System</strong>s of the IMF/World Bank. It relied heavily on the thorough andcomprehensive self-assessments of the two systems performed by the overseers and in-depthinterviews <strong>with</strong> the staff of the Payment <strong>System</strong> Department of Danmarks Nationalbank andof the DFSA charged <strong>with</strong> the oversight, who were the main counterparties in the assessment.Their full cooperation and diligence are greatly appreciated.4. Prior to the mission, Danmarks Nationalbank provided all the necessarydocumentation in the form of relevant laws, articles, brochures, guidelines, etc., andcompleted the questionnaire on payment systems. Also two books published by DanmarksNationalbank on, respectively, monetary policy and payment systems in <strong>Denmark</strong> were madeavailable. The latter provides a thorough description of the infrastructure for the settlement ofpayments and securities and the risks therein. 2928 The assessment was performed by Jan Woltjer, Monetary and Capital Markets Department, InternationalMonetary Fund, formerly <strong>with</strong> the De Nederlandsche Bank.29 These books are available on Danmarks Nationalbank’s website:http://www.nationalbanken.dk/dnuk/specialdocuments.nsf.
Page 1: © 2006 International Monetary Fund
Page 4: 2ContentsPageGlossary .............
Page 7 and 8: 5ML/FTMLAMoEBMoUNAONPOOTCPEPROSCRSS
Page 9 and 10: 76. The payment and securities clea
Page 11 and 12: 9Figure 1. Nordic Countries: Reside
Page 13 and 14: 11Table 1. Denmark
Page 17 and 18: 1518. Stress test results need to b
Page 21 and 22: 19Table 5. Financial</stron
Page 23 and 24: 21Table 6. Market Shares of Major <
Page 25 and 26: 23is hence higher than the EU minim
Page 27 and 28: 25Table 7. Nordic Capital Markets,
Page 29 and 30: 27coverage of such rules to key per
Page 31 and 32: 29 ANNEX IOBSERVANCE OF FINANCIAL S
Page 33 and 34: 31Mortgage financing5. Danish mortg
Page 35 and 36: 3314. Licensing and Structure (CPs
Page 37 and 38: 35Authorities’ responseWith a few
Page 39 and 40: 376. The life sector is dominated b
Page 41 and 42: 39may be subject to more frequent f
Page 43: 41Reference PrincipleRisk assessmen
Page 47 and 48: 459. The infrastructure for retail
Page 49 and 50: 47Main findings19. The assessment d
Page 51 and 52: 49SubjectMain Findings and Recommen
Page 53 and 54: 51Regarding the recommendation to f
Page 55 and 56: 53 ANNEX VREPORT ON THE OBSERVANCE
Page 57 and 58: 5510. All securities traded in the
Page 59 and 60: 57and a zero-hour rule does not exi
Page 61 and 62: 59Table 2. Recommended Actions to I
Page 63 and 64: 61 ANNEX VIIntroductionREPORT ON TH
Page 65 and 66: 63negligible. Authorities recognize
Page 67 and 68: 6521. STR reporting by Danish finan
Page 69 and 70: 67FATF 40+9RecommendationsKEY RECOM
Page 71 and 72: 69Declaration or for non-compliance
Page 73: 71 APPENDIXStress Tests—Market Ri

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