ANNEX I Observance of Financial Supervision Standards and Codes—Summary Assessments
This Annex contains the summary assessments of standards and codes in the financial sector. The assessment has helped to identify the extent to which the supervisory and regulatory framework is adequate to address the potential risks and vulnerabilities in the financial system.
The following detailed assessments were undertaken:
Basel Core Principles for Effective Banking Supervision—by Mr. Peter Hayward (external expert, formerly with the Bank of England) and Mr. Stefan Spamer (external expert, Bundesbank).
The IAIS Insurance Core Principles—by Mr. Henning Göbel (external expert, BAFIN) and Ms. Kirsten Nordbø Steinberg (external expert, formerly with the Norwegian FSA).
CPSS Core Principles for Systemically Important Payment Systems and the CPSS/IOSCO Recommendations for Securities Settlement Systems—by Mr. Jan Woltjer (Monetary and Capital Markets Department).
The FATF 40+9 Recommendations for AML/CFT—by Richard Lalonde (Team Leader) and Paul Ashin (both Monetary and Capital Markets Department); and Margaret Cotter, Giuseppe Lombardo, and Navin Beekarry (all Legal Department).
Denmark’s compliance with the international supervisory standards is generally high and it has taken significant steps to comply with the recently revised AML/CFT standard. The payment and securities clearing and settlement systems are generally effective and efficient as is their oversight. The assessment recommends that the autonomy and accountability of the DFSA be entrenched by providing the agency a statutory basis and granting it greater budgetary autonomy. While the regulatory framework has worked well in the current environment, it would benefit from further strengthening of the governance of financial institutions and upgrading the guideline on internal controls to an Executive Order.
ANNEX II Report on the Observance of the Basel Core Principles for Effective Banking Supervision
1. The assessment of the observance of the Basel Core Principles for Effective Banking Supervision (BCP) developed by the Basel Committee on Banking Supervision was carried out as part of the first Financial Sector Assessment Program (FSAP) mission to Denmark during November 7–18, 2005.24 The assessment of observance of each of the Core Principles was based on the Core Principles Methodology Document of October 1999. The DFSA had prepared a self-assessment on which this assessment is based. Supplemental information was provided to the assessors as necessary.
ANNEX III Report on the Observance of the Insurance Core Principles
ANNEX IV Report on the Observance of the Core Principles for Systemically Important Payment Systems
1. The assessment of the observance of the Core Principles (CPs) for Systemically Important Payment Systems(CPSIPS) developed by the Committee for Payments and Settlement Systems (CPSS) dated January 2001, was carried out as part of the first FSAP mission to Denmark, November 7–18, 2005.28
2. Two payment systems are declared systemically important by the Danish authorities: (i) KRONOS, the RTGS system for large-value payments; and (ii) Sumclearing, a multilateral netting system for the clearing and settlement of retail payments. Sumclearing is defined as systemically important primarily because it is the only retail payment system in Denmark and it also handles relatively large payments. The infrastructure for retail payments has a “pyramid shaped structure” in the sense that it consists of two sub-clearings and their results (sum totals) are netted in the Sumclearing. In this assessment, the infrastructure for retail payment is seen as a complex and interdependent set of procedures encompassing the whole common infrastructure that is used for initiating and processing to the final settlement and reporting. This infrastructure is described in the Aftalebog and the Håndbog for Betalingsformidling (payment system manual) of the Danish Bankers Association (DBA), the owner of Sumclearing.
3. The assessment was performed using the assessment methodology as described in the Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems of the IMF/World Bank. It relied heavily on the thorough and comprehensive self-assessments of the two systems performed by the overseers and in-depth interviews with the staff of the Payment System Department of Danmarks Nationalbank and of the DFSA charged with 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 necessary documentation in the form of relevant laws, articles, brochures, guidelines, etc., and completed the questionnaire on payment systems. Also two books published by Danmarks Nationalbank on, respectively, monetary policy and payment systems in Denmark were made available. The latter provides a thorough description of the infrastructure for the settlement of payments and securities and the risks therein.29
5. The assessor did not face any problem limiting the assessment process. During the mission, the assessor also carried out an assessment of the observance of the CPSS/IOSCO Recommendations for Securities Settlement Systems of VP, the Danish Central Securities Depository (CSD).