English Summary

Annual Report 1998, English Summary

In pursuance of the various laws on supervision, the Danish Financial Supervisory Authority (for simplicity, referred to as the Supervisory Authority throughout this summary) shall submit an annual report of its activities to the Minister for Economic Affairs.

This report contains a description of the supervisory activities relating to credit institutions, mortgage credit institutions, insurance companies, pension funds, the stock exchange field, investment companies and investment funds in the reporting year 1997.

The Supervisory Authority reports to the Minister for Labour on the supervision of the Danish Labour Market Supplementary Pension Fund (ATP) and the Danish Employees' Capital Pension Fund (LD).

Chapter 1 "Selected topics"
"Possible sanctions against significant capital owners in financial institutions" by Professor Erik Werlauff
"The Strategic Basis of the Danish Financial Supervisory Authority" by Henrik Bjerre-Nielsen, Director General.

Chapter 2 "Activities of the Supervisory Authority" consists of six main sections: one for each of the following areas of supervision:

2.1 credit institutions, etc.,
2.2 mortgage credit institutions,
2.3 life assurance and non-life insurance companies as well as pension funds,
2.4 stock exchange field,
2.5 investment companies,
2.6 investment funds and special funds.

The stock exchange field includes securities exchanges, authorised markets, securities brokers, money market brokers, clearing undertakings, registration undertakings as well as joint credit institution data centres.

Each main section is introduced by a detailed description of market developments within the individual areas of supervision.

Market developments are illustrated by means of tables. Please see the following tables:

Table 2.1.1: The Herfindahl-index for Credit Institutions Measured by Net Capital plus Deposits.
Table 2.1.2: Excerpt from the Profit and Loss Accounts and Balance Sheets, etc. of Credit Institutions 1994-1998
Table 2.1.3: Selected Average Key Figures for Credit Institutions 1997-1998
Table 2.2.1: The Herfindahl-index for Mortage Credit Institutions Measured by Aggregate Lending.

Table 2.2.2: Excerpt from the Profit and Loss Accounts and Balance Sheets of Mortgage Credit Institutions 1994-1998
Table 2.2.3: Solvency Ratio by Institutions
Table 2.2.4: Total Loans by Mortgage Credit Institutions and Credit Institutions 1994-1998
Table 2.2.5: New Mortgage Credit Lending in 1998

Table 2.3.1: Excerpt from the Profit and Loss Accounts and Balance Sheets of Life Assurance Companies 1994-1998
Table 2.3.2: Average Key Figures for Life Assurance Companies 1994-1998
Table 2.3.3: Composition of Assets in Life Assurance Companies 1994-1998 - Computed at Market Value
Table 2.3.4: Return on Assets in Life Assurance Companies 1995-1998 - Computed at Market Value
Table 2.3.5: Excerpt from the Profit and Loss Accounts and Balance Sheets of General Pension Funds 1994-1998
Table 2.3.6: Average Key Figures for General Pension Funds 1994-1998
Table 2.3.7: Composition of Assets in General Pension Funds 1994-1998 - Computed at Market Value
Table 2.3.8: Return on Assets in General Pension Funds 1994-1998 - Computed at Market Value
Table 2.3.9: Excerpt from the Profit and Loss Accounts and Balance Sheets of ATP (The Danish Labour Market Supplementary Pension) 1994-1998
Table 2.3.10: Key Figures for ATP 1994-1998
Table 2.3.11: Composition of Assets in ATP 1994-1998 - Computed at Market Value
Table 2.3.12: Return on Assets in ATP 1995-1998 - Computed at Market Value
Table 2.3.13: Excerpt from the Profit and Loss Accounts and Balance Sheets of LD (the Danish Employees' Capital Pension Fund) 1994-1998
Table 2.3.14: Key Figures for LD 1994-1998
Table 2.3.15: Composition of Assets in LD 1994-1998 - Computed at Market Value
Table 2.3.16: Return on Assets in LD 1995-1998 - Computed at Market Value
Table 2.3.17: Excerpt from the Profit and Loss Accounts and Balance Sheets of Direct Non-life Insurance Companies 1994-1998
Table 2.3.18: Average Key Figures for Direct Non-life Insurance Companies 1994-1998

Table 2.4.1: Excerpt from the Consolidated Profit and Loss Accounts and Balance Sheets of the Copenhagen Stock Exchange (Københavns Fondsbørs) 1994-1998
Table 2.4.2: Excerpt from the Profit and Loss Accounts and Balance Sheets of the Danish Securities Centre (VP) 1994-1998
Table 2.4.3: Excerpt from the Trading Activity of the Danish Securities Centre (VP) by Security Type 1994-1998
Table 2.4.4: New Cases involving Abuse of Inside Information etc.

Table 2.5.1: Excerpt from the Profit and Loss Accounts and Balance Sheets of Investment Companies 1996-1998

Table 2.6.1: Excerpt from the Profit and Loss Accounts of Dividend-paying and Accumulation Investment Funds 1994-1998
Table 2.6.2: Excerpt from the Balance Sheets of Dividend-paying and Accumulation Investment Funds 1994-1998

Following the sections on market developments, there is a discussion of supervisory activities within the individual business areas. In connection with this discussion, particular supervisory activities in the year of reporting are mentioned.
Furthermore, chapter 2 contains summaries of the number of companies under supervision within the individual business areas. It also contains information on newly established companies, changes of name, mergers and take-overs as well as the activities of foreign companies operating in Denmark. The names of the specific companies are listed on the homepage of the Danish Financial Supervisory Authority.

With regard to credit institutions, the number of Danish credit institutions, including 4 credit institutions in the Faeroe Islands and 1 in Greenland, totalled 191 at 31 December 1998; 15 foreign credit institutions had a branch in Denmark at 1 April 1999.
At 1 April 1999, 124 foreign credit institutions had given notice that they were offering cross-border services in Denmark.
At 1 April 1999, 8 foreign credit institutions had established representative offices in Denmark.
The supervision of mortgage credit institutions covers 9 institutions.

In 1998, the following number of companies had the right to carry on life assurance and pension fund business in Denmark:
57 public limited companies
1 mutual company
1 foreign company represented in Denmark
4 reinsurance companies
31 general pension funds
64 company pension funds

Moreover, at 1 April 1999, the following number of companies had the right to carry on life assurance business in Denmark:
5 foreign EU/EEA insurance companies were registered and notified as life insurance undertakings in Denmark in the form of a branch.
81 foreign EU/EEA insurance companies were registered and notified as providers of services, from headquarters, under the Third Life Assurance Directive.
3 foreign EU/EEA insurance companies were registered and notified as providers of services, from a branch, in another EU/EEA country, under the Third Life Assurance Directive.

Furthermore, the following number of companies was authorised to carry on non-life insurance business in Denmark in 1998:
72 public limited companies
84 mutual companies
2 branches of foreign companies

At 1 April 1999, the following number of companies had the right to carry on non-life insurance business in Denmark:
37 foreign EU/EEA insurance companies operating non-life insurance companies in the form of a branch.
61 foreign EU insurance companies notified as "major risk" providers under the Second Non-life Insurance Directive.
234 foreign EU/EEA insurance companies were registered and notified as providers, from headquarters, under the Third Non-life Insurance Directive.
39 foreign EU/EEA insurance companies were registered and notified as providers, from a branch in another EU/EEA country, under the Third Non-life Insurance Directive.

According to chapter 2 of the report concerning supervision of workmen's compensation insurance (industrial injuries insurance), 19 companies are, at 1 April 1999, authorised to underwrite workmen's compensation insurance directly.

At 1 April 1999, investment companies, including stockbroking companies, numbered 33.
At 1 April 1999, 3 foreign investment companies had set up or had announced that they would set up operations in Denmark.
At 1 April 1999, 648 foreign investment companies had announced their intention to operate cross-border services in Denmark.
At the end of 1998, 55 investment funds and 16 special funds were registered at the Supervisory Authority. At 1 April 1999, the number of investment funds was 58 and the number of special funds 17.
At the end of 1998, 2 foreign EU investment institutions were notified as entitled to market their shares in Denmark under section 71 of the Danish Investment Associations Act.

Chapter 3 "International Cooperation" contains a detailed description of the work of the Supervisory Authority within the European Union.
This is followed by a brief discussion of the Supervisory Authority's cooperation with the other Nordic countries: Finland, Iceland, Norway and Sweden.
The chapter concludes with a discussion of the Supervisory Authority's cooperation with countries outside the European Union and the Nordic countries.

In December 1998, the Council of the European Communities set up a committee of personal advisers to economics and finance ministers. The committee was to prepare an outline for a policy plan for legislation initiatives etc. in the financial sector within the coming years. Michael Dithmer, Permanent Secretary, Ministry of Economic Affairs, and Henrik Bjerre-Nielsen, Director General of the Danish Supervisory Authority, participated for Denmark. The committee's work will result in a report to be presented to the ministers and the European Council in May/June 1999.

The chapter continues with a discussion of the work being done by the Banking Advisory Committee ("Det Rådgivende Bankudvalg") within credit institutions. This committee was established under article 11 in the First Council Directive of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (77/780/EEC). Henrik Bjerre-Nielsen, Director General of the Supervisory Authority, is a member of the committee, which meets four times a year. In 1998, the group discussed the future regulation of the capital requirements in credit institutions, competition policy and public support to institutions in crisis and the Year 2000 Problem.

Henrik Bjerre-Nielsen is also a member of the Banking Supervisory Sub-Committee under the European Monetary Institute (EMI). The sub-committee has considered EMU and supervision, supervisory aspects in relation to banks for reconstruction and development, supervisory aspects in relation to the financial crisis in Asia, system risks, hedge funds, EU banks' exposure to countries in financial crisis and cross-border financial alliances in Europe.

Furthermore, the Supervisory Authority participates in the work of the "Groupe de Contact", which meets three times a year. This group draws up reports for the Banking Advisory Committee as well as for the Banking Supervisory Sub-Committee.

Together with the Danish Public Prosecutor for Serious Economic Crime, the Supervisory Authority participates in a contact committee, set up by the Commission under article 13 in the Council Directive of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering (91/308/EEC).

The Supervisory Authority also participates in the Technical Group of the Commission on the Interpretation of the Banking Directives.

For the Council's working committee on the Proposal for a Directive of the European Parliament and of the Council concerning the distance marketing of consumer financial services (Document 598PC0468) the task is to make common rules for this field. The proposal requires suppliers to give consumers information on all contractual matters before the contract is concluded. The proposal gives the buyers of financial services a time limit within which to cancel the contract, normally 14 days, but 30 days in the case of life assurance contracts and mortgage credit loans.

In the joint sub-group under the Banking Advisory Committee and the "Groupe de Contact" on Accounting Directives a proposal was made concerning the Commission's recommendation of announcements of information on financial instruments etc. The Commission has not yet approved the proposal.

The joint committee under the Banking Advisory Committee and the "Groupe de Contact" on Accounting Directives had one meeting in 1998 concerning the members' views on The International Accounting Standards Committee's draft E62 - "Financial instruments: Recognition and Measurements".

The Danish Supervisory Authority participates in the meetings of the contact committee on Accounting Directives when subjects concerning statutory accounting requirements are discussed. In 1998, the committee in particular discussed an adjustment of the Fourth Council Directive on the annual accounts of certain types of companies aimed at making it possible to apply the principle of fair value to certain financial assets and liabilities on lines similar to the practices according to the International Accounting Standards (IAS).

In June 1998, three directives were adopted. Directive 98/31/EC (CAD II) amends the Capital Adequacy Directive - CAD (93/6/EEC). Directive 98/32/EC amends the Solvency Ratio Directive (89/647/EEC). Directive 98/33/EC (The Matrix Directive) amends the First Banking Directive (77/780/EEC).

On 21 September 1998, the Commission made a proposal for a Council Directive on access to establish and conduct activities as issuer of electronic money and supervision of such activities. In connection with this proposal, a proposal amending Directive 77/780/EEC was tabled.

Finally, there is a status report on the work being done by the working group set up by EUROSTAT on financial services excluding insurance. In 1998, the group had two meetings in addition to two meetings in the special sub-group.

In the field of insurance, chapter 3 contains a description of the present state of work in the insurance committee established pursuant to the Council Directive of 19 December 1991 setting up an insurance committee (91/675/EEC). The insurance committee meets three times a year, and is made up of no more than two representatives from each Member State as well as representatives from the Commission. The Danish members are Henrik Bjerre-Nielsen, Director General of the Supervisory Authority, and Torben Garne, Director at the Danish Ministry of Economic Affairs.

The insurance committee set up a working group to follow developments within accounting practice with a view to the consequences for the Insurance Accounting Directives and for the supervision of insurance companies.

Another working group was set up to investigate the need for rules in relation to financial re-assurance.
There is also a reference to an EU supervisory conference and the Supervisory Authority's participation in the cooperative efforts amongst the EU supervisory authorities, efforts which are based on the Non-life Insurance and Life Assurance Directives. In 1998, the 110th Conference was held in Luxembourg and the 111th in Amsterdam.

Under the chairmanship of the United Kingdom and Austria, the working group on liquidation of insurance companies held 4 meetings in 1998 focusing on reaching agreement on partial harmonisation of the rules concerning the preferential right of policyholders to some or all of the company's assets when insurance companies are wound up.

In 1998, the EUROSTAT working group on insurance statistics focused on the implementation of the regulation on insurance statistics adopted by the European Council of Ministers on 16 February 1998.

EUROSTAT set up a task force on pension fund statistics with the participation of the Danish Financial Supervisory Authority.

The next part of the chapter is a description of the state of affairs of the stock exchange field, investment companies and UCITS. In the field of securities, stockbroking companies and investments funds the Supervisory Authority has participated in a number of activities.

There is a status report of the work being done in the Council's working group on amendment of the Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS). The group met 4 times in 1998 and continues its discussions in 1999.

In the autumn of 1998, another working group on the Commission Proposal for a 13th European and Council Directive on Company Law concerning Take-over Bids (COM(97)565) held 6 meetings resulting in a proposal from the Austrian chairmanship. The work was continued by the German chairmanship in the spring of 1999 and resulted in a new proposal, which is being discussed by the group.

A working group has been set up to clarify the extent of the obligations imposed on Member States by Directive 98/26/EC on settlement finality in payment and securities settlement systems. The Supervisory Authority is in charge of the group and acts as secretariat.

Furthermore, there is a description of the Supervisory Authority's participation in a number of contact groups, etc.

Last, there is a description of the Supervisory Authority's membership of FESCO (Forum of European Securities Commissions). In January 1999, the FESCO members signed an agreement on cooperation, exchange of information and supervision of the securities market. At the same time it was agreed to establish FECOPOL where experienced employees responsible for supervising the securities market meet regularly.

With regard to Nordic cooperation, the Supervisory Authority is a member of the Nordic Group for Securities Markets ("Den Nordiske Værdipapirmarkedsgruppe"). The other members are supervisory authorities from Finland, Iceland, Norway and Sweden. This group has one meeting every year, during which the members discuss developments and legislation in the stock exchange field as well as experience gained.

A Nordic working group on consolidated accounts for financial conglomerates met in August 1998 and March 1999.

In connection with the informal Nordic supervisory cooperative efforts, a group has been established, consisting of representatives of each supervisory authority's market monitoring / insider units.

Within the field of IT risk, the supervisory authorities from Denmark Finland, Iceland, Norway and Sweden have set up a group concerning legislation, supervisory methods and risks in connection with new technology (including Internet and home banking), system restructuring (e.g. the year 2000 and EMU / EURO) and outsourcing of IT services. This group held one meeting in 1998.

The Nordic Council of Ministers, the economics and finance ministers, decided at a meeting in June 1998 to set up a committee of government officials to investigate various items relating to the Nordic cooperation in the securities field. The work is expected to end in the middle of 1999.

With regard to international cooperation outside the framework of the EU and the Nordic countries, the Supervisory Authority participates, under the auspices of the OECD, in two annual meetings in OECD's insurance committee.

A description follows of the WTO/GATS agreement. The basic principle in GATS, the Most Favoured Nation Status, is that deregulation vis-à-vis one country must benefit all WTO countries. In December 1997, the limited agreement on financial services was replaced by a permanent agreement on trading of financial services. This agreement encompasses 70 countries including all the EU countries. Financial markets in the EU are already among the most open and deregulated financial markets in the world. This permanent agreement does not entail further deregulation in Denmark.

Together with the Danish Public Prosecutor for Serious Economic Crime and the Danish Ministry of Foreign Affairs, the Supervisory Authority participates in meetings in the Financial Task Force (FATF) concerning money laundering.

The International Association of Insurance Supervisors (IAIS) held its 6th annual meeting in Cancun, Mexico, in September 1998. The meeting adopted three new standards: a Supervisory Standard on Licensing, Standards on On-Site Inspections and a Supervisory Standard on Derivatives. Denmark is a member of the Technical Committee and has the general responsibility for the drawing up of principles and standards.

Finally, it is mentioned that the Supervisory Authority is a member of the International Organization of Securities Commissions (IOSCO) and participates in the annual conference and in meetings of the European Regional Committee but does not participate in a working group under the auspices of the IOSCO.

Chapter 4 "Participation in Councils, Boards and Committees" describes the work done by various committees and working groups established by the Minister in charge of the particular area or the Supervisory Authority or, in some cases, by an institution being supervised. The following working groups are included:
· The committee on the financial sector after the year 2000
· The committee on long-term savings in the financial sector
· The committee on market value
· The working group (steering committee) on authorised market places in Denmark
· The Finality working group
· The committee on financial crime and computer crime
· The Supervisory Authority's Advisory Committee on accounts for credit institutions and investment companies
· The accounting council's working group on the preparation of the basis for a new act on annual accounts
· The working group on auditing in financial enterprises and financial groups
· The working group on accounting rules for insurance companies and pension funds
· The working group on the principle of balance in the Act on Mortgage Credit
· The working group on the revised executive order on the accounts of investment funds and special funds
· The Greenland Committee
· The committee on dematerialised registration in the land register

Chapter 5 "Publications". Every year the Supervisory Authority publishes a report on its activities as well as a collection of publications with detailed accounting information and statistical material on the individual areas of supervision. In addition, the Supervisory Authority publishes an annual up-to-date edition of the publication "Aggregate Figures from the Danish Financial Supervisory Authority" ("Hovedtal fra Finanstilsynet"); some of the information which it contains is a summary of the financial sector's share holdings and shares in the capital of listed companies. Taken together with the publication on key figures, the publications containing statistical material are in the nature of a statistical yearbook for the financial sector.

As from the reporting year 1997, it was decided to change the annual report so that information on rules, decisions of principle and the cross- border activities of financial companies is only presented on the Supervisory Authority's website on the Internet. As of the reporting year 1997, the statistical reports on the individual areas of supervision and the publication on key figures will only be published as net publications.

Chapter 6 "The Strategic Basis and Organiszation of the Supervisory Authority" deals with the strategic basis and general objective of the Supervisory Authority.

As of 1 June 1999, the Supervisory Authority consists of a management, an international adviser and 13 divisions. The management consists of:

Director General: Henrik Bjerre-Nielsen
Deputy Director General: Peter Sylvest Larsen
Deputy Director General: Erik Johansen
Deputy Director General: Flemming Nytoft Rasmussen
Assistant Director General: Susanne Kortsen

Chapter 7 "Appeals Boards and Deposit Guarantee Scheme" contains, among other things, a list of appeals boards empowered to deal with complaints concerning the financial sector.