Annex 2

The Statutory Basis for the Financial Sector

In 1997 only a few adjustments were made to the statutory basis for the financial sector. During the year a number of analyses of conditions in the financial sector were conducted. Reports were prepared on confidentiality and the definition of parties in financial supervision and on the handling of banking crises.

New Management Regulations and Regulations on Speculation

Act no. 475 of June 10, 1997 harmonizes the rules for the financial sector concerning speculation and on the access for general managers, etc. of financial institutions to undertake posts other than management of the financial institution. This Act amends the provisions of a number of laws, including the Commercial Banks and Savings Banks Act, the Mortgage Credit Act, the Insurance Activities Act and the Securities Trading Act. This Act stipulates a prohibition in principle on speculative trading. In November 1997 the Danish Financial Supervisory Authority issued an Executive Order stipulating more detailed rules concerning which asset transactions are considered to be speculative trading.

Investment Associations and Special Purpose Associations Act

This Act entered into force on January 1, 1998. It expands the scope of the Act on Investment Associations to also include certain categories of special purpose associations. Like investment associations these special purpose associations may receive capital to be placed mainly in securities in accordance with the principle of risk diversification. The principal difference between the special purpose associations and the investment associations is that the former are subject to special placement rules. The Act comprises four types of special purpose associations. Placement associations have access to place funds with one single issuer to a greater extent than is the case for investment associations. Money market associations must primarily place capital in money-market related securities. Funds of funds may make capital placements in the shares of other investment associations and special purpose associations. SME associations must primarily place their capital in shares issued by unlisted companies. Furthermore, the Act stipulates a number of requirements to ensure that investors are fully informed of the risks pertaining to the associations in question. Act no. 475 of June 10, 1997, cf. above, thus gives access for pension funds in banks to be placed in shares in special purpose associations.

Amendment of the EC Directives on Solvency Ratios and the Capital Adequacy of Investment Companies and Credit Insti- tutions

In November 1997 the EU member states reached agreement in principle on three proposals to amend the solvency ratio directive and the directive on the capital adequacy of investment companies and credit institutions. One of the proposals e.g. contains capital requirements for the non-listed derivative instruments of credit institutions. The second proposal extends a transitional period, thereby allowing member states to continue for a number of years to set lower capital requirements for commercial mortgage lending by credit institutions. The third proposal contains provisions on capital requirements for commodities and commodity derivatives of investment companies and credit institutions and allows the use of internal risk management models to calculate market risks.

Proposal for an EC Directive on Settlement Finality and Collateral Security in Payment Systems and Securities Settlement Systems

In October 1997 the EU member states reached agreement in principle on this directive which is e.g. designed to reduce the systemic risk in payment and securities settlement systems, cf. p. 72f.