Report and Accounts 2002

Directives, etc.

New decision-making procedure in the financial area in the EU
At the meeting of the Ecofin Council on 3 December 2002 it was decided to extend the Lamfalussy procedure to the entire financial area (credit institutions, insurance and pensions, and securities). The Lamfalussy procedure, which was originally introduced for securities, enables more efficient regulation of the financial area in order to keep up with the rapid development in this area. In future the EU Council of Ministers and the European Parliament will only adopt the key statutory principles in their regulation, while the technical implementing measures will be left to the European Commission, assisted by regulation committees comprising high-ranking representatives of the national ministries of finance/economic affairs. In addition, supervisory committees are set up to advise the European Commission and the regulation committees on supervisory issues and to ensure uniform implementation of the rules. Members of the supervisory committees will be representatives of supervisory authorities and in the banking committee also the national central banks without supervisory responsibilities, including Danmarks Nationalbank.

Directive on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (the Financial Conglomerates Directive)
At the meeting of the Ecofin Council on 12 September 2002 political agreement was reached on the Financial Conglomerates Directive, which was finally adopted on 20 November 2002. The implementation deadline is 18 months. No major amendments to Danish legislation are expected on the basis of the directive, which is a superstructure to the regulation of financial groups within the individual sectors (credit institutions, insurance companies, etc.) and fills a gap in the existing EU regulation. The directive covers the following areas:

Definition of a financial conglomerate.
Rules to prevent multiple gearing (i.e. simultaneous use of the same capital in several entities of the conglomerate).
Methods to calculate the solvency position at the level of the entire conglomerate.
Intra-group transactions.
"Fit and Proper" test of the conglomerate's management.
Principles for appointment of a coordinator of supervisory activities.
Regulation of parent entities situated outside the EU.

Directive 2002/47/EC on financial collateral arrangements (the Collateral Directive)
At the meeting of the Ecofin Council in December 2001 political agreement was reached on the proposal, which was finally adopted on 6 June 2002. The directive entails that financial collateral arrangements must to a greater extent than today be respected by third parties, including the estate in bankruptcy of the collateral provider. The directive comprises central banks, public authorities, financial institutions subject to supervision and their counterparties and solely relates to the provision of collateral in the form of securities and cash.

The directive must be implemented in Danish law by 27 December 2003.

Directive on insider trading and market manipulation (market abuse)
In May 2001 the European Commission submitted a proposal to amend the directive on insider trading. The directive was finally adopted on 3 December 2002.

The directive lays down and implements common rules to combat market manipulation in the EU. Against the background of the events in the USA on 11 September 2001 a special objective of the directive is to combat the financing of terrorism.

The directive updates the existing rules on insider trading, which are more than 10 years old. The rules on insider trading are combined with a new set of rules on market manipulation in a single directive. Market manipulation has not previously been regulated at EU level. This has resulted in very heterogeneous regulation within the EU, and in some member states there is no regulation at all in this area. Denmark has already introduced rules on market manipulation. The existing rules on insider trading relate to securities only, i.e. primarily stocks and bonds, while the new rules on market manipulation will be broader, comprising all "financial instruments". The new directive thus takes account of the development of new financial products.

Proposal for a directive on the prospectus to be published when securities are offered to the public or admitted to trading (the Prospectus Directive)
In June 2001 the European Commission submitted a proposal for a directive on prospectuses. Political agreement on the compromise proposed by the Danish Presidency was reached at the meeting of the Ecofin Council in November 2002, so that a common position on the proposal may be adopted in the first half of 2003.

The proposal addresses several issues. The primary objective is to create better and more uniform conditions for investing and raising capital in the EU. Another objective is to enhance consumer protection by helping to ensure that relevant information concerning securities and issuers is stated in the prospectuses. In addition, the proposal aims to ease the administrative burdens on small and medium-sized enterprises seeking to procure capital. Under the proposal, a prospectus which has been approved by one member state can freely be listed and offered in all other member states and thus obtain a European passport. A European passport for issuers will ease the administrative burden, since it will not be necessary to issue several different editions of the prospectus or to comply with special national requirements.

Prospectuses for bonds with a nominal value of less than 5,000 euro and for equity participation are to be approved by the competent authorities in the home member state. Issuers of bonds with a nominal value of 5,000 euro or more may have the prospectus approved in their home member state or in the member state in which the paper is to be listed or sold. The proposal includes a number of exceptions from the prospectus requirement, the most important being issues intended for professional investors, issues intended for fewer than 100 persons per member state, and issues with a unit size of 50,000 euro or more. Issues by governments and regional and local authorities, the central banks of the member states, the European Central Bank, international organisations and small and medium-sized enterprises are excepted from the directive.

Proposal for Investment Services Directive (ISD)
In November 2002 the European Commission submitted the above proposal for a directive. The proposal has been prepared on the basis of consultations with market participants and other stakeholders, and a number of reports from the Committee of European Securities Regulators. The directive is to replace the existing directive from 1993, which is outdated in terms of investor protection, investment services and market structure. Moreover, the rules in the existing directive have proved to be far from sufficient to generate the desired integration in the financial area. The proposed directive paves the way for more extensive harmonisation, while a number of provisions are to be adopted subsequently under the auspices of the Commission (under the Lamfalussy procedure). The target date for the adoption of the directive is by the end of 2004.

Proposal for Directive on Takeover Bids
In October 2002 the European Commission submitted a proposal for a directive on takeover bids. The previous proposal from 1989 was reject ed by the European Parliament in July 2001. One of the main objectives of the new proposal is to enhance the protection of minority shareholders. The proposed directive includes rules on:

A mandatory bid to minority shareholders when a certain percentage of voting rights has been acquired.
Rendering restrictions on voting rights unenforceable in the event of a takeover bid.
Greater overall transparency in connection with takeovers.

The proposal may affect the widespread use of restrictions on voting rights in the Danish financial sector.

Acts, etc.

Act on amendment of preventive measures against money laundering (the Laundering Act).
In May 2002 the Folketing (Parliament) adopted an amendment of the Laundering Act as part of the Danish government's anti-terror measures. The act came into force in June 2002. Unlike before, Danmarks Nationalbank is comprised by the act to the extent that Danmarks Nationalbank conducts the same type of activities as credit and financing institutions. The act amends the rules and regulations in the following areas, among others:

Accountants, estate and insurance brokers and attorneys, etc. are also comprised by the obligation to report suspected money laundering or financing of terrorism.
The reporting obligation is extended to include suspected financing of terrorism.
Information requirements regarding the identity of remitters are tightened for payment settlement without personal contact between the remitter and the agent, or where the agent is not an institution where the remitter holds an account.

Financial Business Act, etc.
On 29 May 2002 the Folketing (Parliament) adopted the Act to amend the Financial Business Act and a number of special acts. The amendment act came into force on respectively 1 July 2002 and 1 January 2003 and includes a number of part-elements:

To a limited extent, the amendment act is a continuation of the efforts to introduce a new legal structure in the financial area. A new chapter is inserted in the Financial Business Act, relating to the calculation of fees for supervisory activities. The rules on good securities dealer practices are transferred from the Securities Trading Act, so that only the rules on good securities trading practices remain in the Securities Trading Act. The explanatory notes include a declaration of intent to submit a proposal for a major legal reform in the parliamentary year 2002/2003.

For Danish Ship Finance bonds, as for mortgage-credit bonds, bond owners are given preferential treatment in the event of compulsory winding-up, so that the bonds meet the conditions for being gilt-edged securities. Preferential treatment in the event of compulsory winding-up is also given to the interest and exchange-rate guarantors who have entered into swap agreements with Danish Ship Finance.

With the amendment act, the powers to issue rules on good trading practices for financial enterprises are transferred to the Minister for Economic and Business Affairs. Until the minister, after consultation with the Consumer Ombudsman and the Financial Business Council and after an extensive consultation procedure, has laid down rules in this area, the Consumer Ombudsman's guidelines shall apply. The Danish Financial Supervisory Authority is to supervise the observance of the above rules on good practices.

In addition, a number of amendments are introduced to the sector-specific acts. Of special interest are the amendments to the Act on Danish Commercial Banks and Savings Banks, the Mortgage Credit Act and the Danish Investment Companies Act, which allow the inclusion of hybrid core capital (Tier 1½)^[1] in the capital-adequacy statement. On the basis of a number of specific cases, a definition of the concept of "financial leasing" is also introduced in the Act on Danish Commercial Banks and Savings Banks. The act includes a set of new rules for protecting guarantors outside commercial relationships, as well as a number of provisions in relation to costs for consideration of cases by the Valuation Committee.

Act to amend the Securities Trading Act, etc.
On 29 May 2002 the Folketing (Parliament) adopted the Act to amend the Securities Trading Act. The act came into force on respectively 1 July and 1 October 2002. The act includes the following amendments:

Clarification of the distribution of powers between the Securities Council and the Consumer Ombudsman, and appointment of a consumer representative to the Securities Council.
Introduction of an insider register.
Extension of the ban on insider trading to include unlisted investment certificates.
Clarification of distribution of powers in the stock-exchange area between the Danish Financial Supervisory Authority, the Securities Council and the market undertakings.
Amendment of the automatic collateralisation agreement.

An insider register is introduced with a view to creating transparency in relation to the so-called primary insiders' private trade in stocks in their respective companies if these are stock-exchange-listed or admitted to trading in an authorised marketplace. Such registers are known from Sweden and the USA. Primary insiders comprised by the register are persons who by virtue of their positions are presumed to be in possession of insider knowledge about the company.

Since 1 April 2001 there has been a statutory basis for using the automatic collateralisation agreement in connection with settlement of pay ments in registered payment systems. The banks, Danmarks Nationalbank and VP Securities Services have since then discussed the most expedient use of the automatic collateralisation agreement in Denmark. In the autumn of 2001 Danmarks Nationalbank decided to opt for the model preferred by the banks for implementing the automatic collateralisation agreement, the Reservation Model. Danmarks Nationalbank made it a precondition that certain legal problems in relation to the model were to be solved, possibly via amendment/specification of the Securities Trading Act. The amendment to the Act addresses the problems registered. The proposed amendment entails that Danmarks Nationalbank, as the lender, will also have a secure legal basis for credits granted under the automatic collateralisation agreement after the implementation of the Reservation Model.

Consultation responses

Concerning the proposed Financial Business Act, etc.
The proposal is described above.

On 26 February 2002 Danmarks Nationalbank submitted the following consultation response:
The proposal is a continuation of the efforts to introduce a new legal structure in the financial area. The Financial Business Act is extended to new areas, including company pension funds, good securities dealer practices and calculation of fees to the Danish Financial Supervisory Authority.

Danmarks Nationalbank endorses this further step in the direction of a joint act for the financial sector with a view to ensuring that similar products are to a higher degree treated in the same way within the various financial segments. The large-scale legal reform which is scheduled for the parliamentary year 2002/2003 will also contribute to simplifying e.g. the rules on foundation of financial enterprises, licence to conduct financial business, capital adequacy, mergers, etc.

As regards the Danish Financial Supervisory Authority's new powers to issue rules on good practices within the area of financial business, Danmarks Nationalbank in its consultation response of 5 January 2001 concerning the proposed Financial Business Act emphasised that it should be ensured that regulations to the same effect are not issued by several public authorities, since the Consumer Ombudsman had already issued rules on e.g. good banking practices under the Marketing Act. The bill is e.g. aimed at addressing this overlap in the distribution of powers. The proposal entails that the Financial Business Council is granted the sole powers to issue rules on good practice within the area of financial business, in line with the powers vested in the Securities Council. It is, however, proposed that the Consumer Ombudsman be allowed to participate in the meetings of the Financial Business Council as a special expert without voting powers when the Council treats cases relating to good practices. Under the proposal the Consumer Ombudsman will be able to request that such cases be settled by a prescribed majority. According to the explanatory notes on the provisions the Consumer Ombudsman may also have cases relating to good practice put on the agenda of the Council, provided that at least three members of the Council consent thereto. These powers are not evident from the wording of the bill itself, however.

Danmarks Nationalbank welcomes the clarification of powers relating to good practices within the area of financial business. It should be considered whether it would be more expedient to vest the powers to issue rules in the Danish Financial Supervisory Authority after consultation with the Financial Business Council, rather than in the Council itself.

The bill entails that for Danish Ship Finance bonds, as for mortgage-credit bonds, owners are given preferential treatment in the event of compulsory liquidation, so that the bonds can attain the status of gilt-edged securities. In several respects the financial legislation includes special rules for gilt-edged securities, including investment of funds to cover provisions for claims on insurance companies, investment-association funds and capital adequacy for credit institutions' holdings of gilt-edged securities, which is key to the possibilities of selling these securities. In addition, the bill entails that swap agreements are also comprised by the preferential treatment by the winding-up estate. Swap agreements relate to the fact that the bonds are issued in Danish kroner, while lending is in US dollars.

Danmarks Nationalbank finds it natural that owners of Danish Ship Finance bonds are given preferential treatment in the event of compulsory liquidation, in line with owners of mortgage-credit bonds. Putting rights holders under swap agreements on an equal footing with owners of bonds can only be motivated by the special activities of Danish Ship Finance and should therefore not be extended to other types of institutions.

For competitive reasons Danmarks Nationalbank finds it expedient that all Danish institutions are given the same opportunities of attracting international capital as institutions in other countries. In this connection it is, however, emphasised that the proposal does not cause the actual core capital to be undermined, and that the proposal allows for the overall capital base to be improved, since supplementary capital can be converted to Tier 1½.

Concerning the proposal to amend the Securities Trading Act
The proposal is described above.

On 26 February 2002 Danmarks Nationalbank submitted the following consultation response:
Parts of the bill are aimed at further integration of consumer considerations into the Securities Trading Act. This is achieved by supplementing the Securities Council with a representative of the private investors, and by clarifying consumer considerations in relation to the Securities Council.

At the same time it is proposed that the present overlap of powers between the Securities Council and the Consumer Ombudsman is addressed by giving the Securities Council sole powers to issue rules on good securities trading practices. It is, however, proposed that the Consumer Ombudsman be allowed to participate in the meetings of the Securities Council as a special expert without voting powers when the Council treats cases relating to good securities trading practices. Under the proposal the Consumer Ombudsman will be able to request that such cases be settled by a prescribed majority. According to the explanatory notes on the provisions the Consumer Ombudsman may also have cases relating to good practice put on the agenda of the Council, provided at that at least four members consent thereto. These powers are not evident from the wording of the bill itself, however.

Danmarks Nationalbank supports the proposal to supplement the Securities Council with a consumer representative. Danmarks Nationalbank also welcomes the clarification of powers in relation to good securities trading practices.

The bill entails a clear distribution of powers between the Securities Council, the Danish Financial Supervisory Authority and the market undertakings by transferring powers currently vested in the market players to the Securities Council. It appears from the explanatory notes to the bill that this is in step with the international trend, i.e. to let public authorities have the overall responsibility for supervising the securities market when market undertakings are privatised. For instance, it is proposed to transfer the powers to approve prospectuses to the Securities Council, which may, however, delegate certain powers in this respect to the market undertakings.

The development since the stock-market reform, with stock exchanges being driven as private undertakings, has supported Danmarks Nationalbank's fundamental position that the full responsibility for market supervision should lie with a public authority. Danmarks Nationalbank therefore supports the proposed amendments.

The proposal to amend section 55 relating to the automatic collateralisation agreement addresses practical requirements registered as part of the extension of the automatic collateralisation agreement to include credits in connection with payment systems, which took effect on 1 April 2001.

The proposal promotes a more efficient use of securities pledged as collateral for credit in connection with securities settlement and payments. Danmarks Nationalbank supports this proposal on the grounds that the proposal allows a certain degree of flexibility in the technical implementation of the settlement procedure, so that an automatic collateralisation agreement may be established some time prior to a settlement within the current overall framework for the automatic collateralisation agreement of maximum 24 hours.

[1] See also Birgitte Bundgaard and Suzanne Hyldahl, Structure of the Banks' Capital – New Statutory Requirements and Opportunities, Danmarks Nationalbank, Monetary Review, 3rd Quarter 2002.


					Publication overview - Contents - Top/Bottom - Previous/Next
				The Statutory Basis for the Financial Sector
					Directives, etc. New decision-making procedure in the financial area in the EU At the meeting of the Ecofin Council on 3 December 2002 it was decided to extend the Lamfalussy procedure to the entire financial area (credit institutions, insurance and pensions, and securities). The Lamfalussy procedure, which was originally introduced for securities, enables more efficient regulation of the financial area in order to keep up with the rapid development in this area. In future the EU Council of Ministers and the European Parliament will only adopt the key statutory principles in their regulation, while the technical implementing measures will be left to the European Commission, assisted by regulation committees comprising high-ranking representatives of the national ministries of finance/economic affairs. In addition, supervisory committees are set up to advise the European Commission and the regulation committees on supervisory issues and to ensure uniform implementation of the rules. Members of the supervisory committees will be representatives of supervisory authorities and in the banking committee also the national central banks without supervisory responsibilities, including Danmarks Nationalbank. Directive on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (the Financial Conglomerates Directive) At the meeting of the Ecofin Council on 12 September 2002 political agreement was reached on the Financial Conglomerates Directive, which was finally adopted on 20 November 2002. The implementation deadline is 18 months. No major amendments to Danish legislation are expected on the basis of the directive, which is a superstructure to the regulation of financial groups within the individual sectors (credit institutions, insurance companies, etc.) and fills a gap in the existing EU regulation. The directive covers the following areas: Definition of a financial conglomerate. Rules to prevent multiple gearing (i.e. simultaneous use of the same capital in several entities of the conglomerate). Methods to calculate the solvency position at the level of the entire conglomerate. Intra-group transactions. "Fit and Proper" test of the conglomerate's management. Principles for appointment of a coordinator of supervisory activities. Regulation of parent entities situated outside the EU. Directive 2002/47/EC on financial collateral arrangements (the Collateral Directive) At the meeting of the Ecofin Council in December 2001 political agreement was reached on the proposal, which was finally adopted on 6 June 2002. The directive entails that financial collateral arrangements must to a greater extent than today be respected by third parties, including the estate in bankruptcy of the collateral provider. The directive comprises central banks, public authorities, financial institutions subject to supervision and their counterparties and solely relates to the provision of collateral in the form of securities and cash. The directive must be implemented in Danish law by 27 December 2003. Directive on insider trading and market manipulation (market abuse) In May 2001 the European Commission submitted a proposal to amend the directive on insider trading. The directive was finally adopted on 3 December 2002. The directive lays down and implements common rules to combat market manipulation in the EU. Against the background of the events in the USA on 11 September 2001 a special objective of the directive is to combat the financing of terrorism. The directive updates the existing rules on insider trading, which are more than 10 years old. The rules on insider trading are combined with a new set of rules on market manipulation in a single directive. Market manipulation has not previously been regulated at EU level. This has resulted in very heterogeneous regulation within the EU, and in some member states there is no regulation at all in this area. Denmark has already introduced rules on market manipulation. The existing rules on insider trading relate to securities only, i.e. primarily stocks and bonds, while the new rules on market manipulation will be broader, comprising all "financial instruments". The new directive thus takes account of the development of new financial products. Proposal for a directive on the prospectus to be published when securities are offered to the public or admitted to trading (the Prospectus Directive) In June 2001 the European Commission submitted a proposal for a directive on prospectuses. Political agreement on the compromise proposed by the Danish Presidency was reached at the meeting of the Ecofin Council in November 2002, so that a common position on the proposal may be adopted in the first half of 2003. The proposal addresses several issues. The primary objective is to create better and more uniform conditions for investing and raising capital in the EU. Another objective is to enhance consumer protection by helping to ensure that relevant information concerning securities and issuers is stated in the prospectuses. In addition, the proposal aims to ease the administrative burdens on small and medium-sized enterprises seeking to procure capital. Under the proposal, a prospectus which has been approved by one member state can freely be listed and offered in all other member states and thus obtain a European passport. A European passport for issuers will ease the administrative burden, since it will not be necessary to issue several different editions of the prospectus or to comply with special national requirements. Prospectuses for bonds with a nominal value of less than 5,000 euro and for equity participation are to be approved by the competent authorities in the home member state. Issuers of bonds with a nominal value of 5,000 euro or more may have the prospectus approved in their home member state or in the member state in which the paper is to be listed or sold. The proposal includes a number of exceptions from the prospectus requirement, the most important being issues intended for professional investors, issues intended for fewer than 100 persons per member state, and issues with a unit size of 50,000 euro or more. Issues by governments and regional and local authorities, the central banks of the member states, the European Central Bank, international organisations and small and medium-sized enterprises are excepted from the directive. Proposal for Investment Services Directive (ISD) In November 2002 the European Commission submitted the above proposal for a directive. The proposal has been prepared on the basis of consultations with market participants and other stakeholders, and a number of reports from the Committee of European Securities Regulators. The directive is to replace the existing directive from 1993, which is outdated in terms of investor protection, investment services and market structure. Moreover, the rules in the existing directive have proved to be far from sufficient to generate the desired integration in the financial area. The proposed directive paves the way for more extensive harmonisation, while a number of provisions are to be adopted subsequently under the auspices of the Commission (under the Lamfalussy procedure). The target date for the adoption of the directive is by the end of 2004. Proposal for Directive on Takeover Bids In October 2002 the European Commission submitted a proposal for a directive on takeover bids. The previous proposal from 1989 was reject ed by the European Parliament in July 2001. One of the main objectives of the new proposal is to enhance the protection of minority shareholders. The proposed directive includes rules on: A mandatory bid to minority shareholders when a certain percentage of voting rights has been acquired. Rendering restrictions on voting rights unenforceable in the event of a takeover bid. Greater overall transparency in connection with takeovers. The proposal may affect the widespread use of restrictions on voting rights in the Danish financial sector. Acts, etc. Act on amendment of preventive measures against money laundering (the Laundering Act). In May 2002 the Folketing (Parliament) adopted an amendment of the Laundering Act as part of the Danish government's anti-terror measures. The act came into force in June 2002. Unlike before, Danmarks Nationalbank is comprised by the act to the extent that Danmarks Nationalbank conducts the same type of activities as credit and financing institutions. The act amends the rules and regulations in the following areas, among others: Accountants, estate and insurance brokers and attorneys, etc. are also comprised by the obligation to report suspected money laundering or financing of terrorism. The reporting obligation is extended to include suspected financing of terrorism. Information requirements regarding the identity of remitters are tightened for payment settlement without personal contact between the remitter and the agent, or where the agent is not an institution where the remitter holds an account. Financial Business Act, etc. On 29 May 2002 the Folketing (Parliament) adopted the Act to amend the Financial Business Act and a number of special acts. The amendment act came into force on respectively 1 July 2002 and 1 January 2003 and includes a number of part-elements: To a limited extent, the amendment act is a continuation of the efforts to introduce a new legal structure in the financial area. A new chapter is inserted in the Financial Business Act, relating to the calculation of fees for supervisory activities. The rules on good securities dealer practices are transferred from the Securities Trading Act, so that only the rules on good securities trading practices remain in the Securities Trading Act. The explanatory notes include a declaration of intent to submit a proposal for a major legal reform in the parliamentary year 2002/2003. For Danish Ship Finance bonds, as for mortgage-credit bonds, bond owners are given preferential treatment in the event of compulsory winding-up, so that the bonds meet the conditions for being gilt-edged securities. Preferential treatment in the event of compulsory winding-up is also given to the interest and exchange-rate guarantors who have entered into swap agreements with Danish Ship Finance. With the amendment act, the powers to issue rules on good trading practices for financial enterprises are transferred to the Minister for Economic and Business Affairs. Until the minister, after consultation with the Consumer Ombudsman and the Financial Business Council and after an extensive consultation procedure, has laid down rules in this area, the Consumer Ombudsman's guidelines shall apply. The Danish Financial Supervisory Authority is to supervise the observance of the above rules on good practices. In addition, a number of amendments are introduced to the sector-specific acts. Of special interest are the amendments to the Act on Danish Commercial Banks and Savings Banks, the Mortgage Credit Act and the Danish Investment Companies Act, which allow the inclusion of hybrid core capital (Tier 1½)^[1] in the capital-adequacy statement. On the basis of a number of specific cases, a definition of the concept of "financial leasing" is also introduced in the Act on Danish Commercial Banks and Savings Banks. The act includes a set of new rules for protecting guarantors outside commercial relationships, as well as a number of provisions in relation to costs for consideration of cases by the Valuation Committee. Act to amend the Securities Trading Act, etc. On 29 May 2002 the Folketing (Parliament) adopted the Act to amend the Securities Trading Act. The act came into force on respectively 1 July and 1 October 2002. The act includes the following amendments: Clarification of the distribution of powers between the Securities Council and the Consumer Ombudsman, and appointment of a consumer representative to the Securities Council. Introduction of an insider register. Extension of the ban on insider trading to include unlisted investment certificates. Clarification of distribution of powers in the stock-exchange area between the Danish Financial Supervisory Authority, the Securities Council and the market undertakings. Amendment of the automatic collateralisation agreement. An insider register is introduced with a view to creating transparency in relation to the so-called primary insiders' private trade in stocks in their respective companies if these are stock-exchange-listed or admitted to trading in an authorised marketplace. Such registers are known from Sweden and the USA. Primary insiders comprised by the register are persons who by virtue of their positions are presumed to be in possession of insider knowledge about the company. Since 1 April 2001 there has been a statutory basis for using the automatic collateralisation agreement in connection with settlement of pay ments in registered payment systems. The banks, Danmarks Nationalbank and VP Securities Services have since then discussed the most expedient use of the automatic collateralisation agreement in Denmark. In the autumn of 2001 Danmarks Nationalbank decided to opt for the model preferred by the banks for implementing the automatic collateralisation agreement, the Reservation Model. Danmarks Nationalbank made it a precondition that certain legal problems in relation to the model were to be solved, possibly via amendment/specification of the Securities Trading Act. The amendment to the Act addresses the problems registered. The proposed amendment entails that Danmarks Nationalbank, as the lender, will also have a secure legal basis for credits granted under the automatic collateralisation agreement after the implementation of the Reservation Model. Consultation responses Concerning the proposed Financial Business Act, etc. The proposal is described above. On 26 February 2002 Danmarks Nationalbank submitted the following consultation response: The proposal is a continuation of the efforts to introduce a new legal structure in the financial area. The Financial Business Act is extended to new areas, including company pension funds, good securities dealer practices and calculation of fees to the Danish Financial Supervisory Authority. Danmarks Nationalbank endorses this further step in the direction of a joint act for the financial sector with a view to ensuring that similar products are to a higher degree treated in the same way within the various financial segments. The large-scale legal reform which is scheduled for the parliamentary year 2002/2003 will also contribute to simplifying e.g. the rules on foundation of financial enterprises, licence to conduct financial business, capital adequacy, mergers, etc. As regards the Danish Financial Supervisory Authority's new powers to issue rules on good practices within the area of financial business, Danmarks Nationalbank in its consultation response of 5 January 2001 concerning the proposed Financial Business Act emphasised that it should be ensured that regulations to the same effect are not issued by several public authorities, since the Consumer Ombudsman had already issued rules on e.g. good banking practices under the Marketing Act. The bill is e.g. aimed at addressing this overlap in the distribution of powers. The proposal entails that the Financial Business Council is granted the sole powers to issue rules on good practice within the area of financial business, in line with the powers vested in the Securities Council. It is, however, proposed that the Consumer Ombudsman be allowed to participate in the meetings of the Financial Business Council as a special expert without voting powers when the Council treats cases relating to good practices. Under the proposal the Consumer Ombudsman will be able to request that such cases be settled by a prescribed majority. According to the explanatory notes on the provisions the Consumer Ombudsman may also have cases relating to good practice put on the agenda of the Council, provided that at least three members of the Council consent thereto. These powers are not evident from the wording of the bill itself, however. Danmarks Nationalbank welcomes the clarification of powers relating to good practices within the area of financial business. It should be considered whether it would be more expedient to vest the powers to issue rules in the Danish Financial Supervisory Authority after consultation with the Financial Business Council, rather than in the Council itself. The bill entails that for Danish Ship Finance bonds, as for mortgage-credit bonds, owners are given preferential treatment in the event of compulsory liquidation, so that the bonds can attain the status of gilt-edged securities. In several respects the financial legislation includes special rules for gilt-edged securities, including investment of funds to cover provisions for claims on insurance companies, investment-association funds and capital adequacy for credit institutions' holdings of gilt-edged securities, which is key to the possibilities of selling these securities. In addition, the bill entails that swap agreements are also comprised by the preferential treatment by the winding-up estate. Swap agreements relate to the fact that the bonds are issued in Danish kroner, while lending is in US dollars. Danmarks Nationalbank finds it natural that owners of Danish Ship Finance bonds are given preferential treatment in the event of compulsory liquidation, in line with owners of mortgage-credit bonds. Putting rights holders under swap agreements on an equal footing with owners of bonds can only be motivated by the special activities of Danish Ship Finance and should therefore not be extended to other types of institutions. For competitive reasons Danmarks Nationalbank finds it expedient that all Danish institutions are given the same opportunities of attracting international capital as institutions in other countries. In this connection it is, however, emphasised that the proposal does not cause the actual core capital to be undermined, and that the proposal allows for the overall capital base to be improved, since supplementary capital can be converted to Tier 1½. Concerning the proposal to amend the Securities Trading Act The proposal is described above. On 26 February 2002 Danmarks Nationalbank submitted the following consultation response: Parts of the bill are aimed at further integration of consumer considerations into the Securities Trading Act. This is achieved by supplementing the Securities Council with a representative of the private investors, and by clarifying consumer considerations in relation to the Securities Council. At the same time it is proposed that the present overlap of powers between the Securities Council and the Consumer Ombudsman is addressed by giving the Securities Council sole powers to issue rules on good securities trading practices. It is, however, proposed that the Consumer Ombudsman be allowed to participate in the meetings of the Securities Council as a special expert without voting powers when the Council treats cases relating to good securities trading practices. Under the proposal the Consumer Ombudsman will be able to request that such cases be settled by a prescribed majority. According to the explanatory notes on the provisions the Consumer Ombudsman may also have cases relating to good practice put on the agenda of the Council, provided at that at least four members consent thereto. These powers are not evident from the wording of the bill itself, however. Danmarks Nationalbank supports the proposal to supplement the Securities Council with a consumer representative. Danmarks Nationalbank also welcomes the clarification of powers in relation to good securities trading practices. The bill entails a clear distribution of powers between the Securities Council, the Danish Financial Supervisory Authority and the market undertakings by transferring powers currently vested in the market players to the Securities Council. It appears from the explanatory notes to the bill that this is in step with the international trend, i.e. to let public authorities have the overall responsibility for supervising the securities market when market undertakings are privatised. For instance, it is proposed to transfer the powers to approve prospectuses to the Securities Council, which may, however, delegate certain powers in this respect to the market undertakings. The development since the stock-market reform, with stock exchanges being driven as private undertakings, has supported Danmarks Nationalbank's fundamental position that the full responsibility for market supervision should lie with a public authority. Danmarks Nationalbank therefore supports the proposed amendments. The proposal to amend section 55 relating to the automatic collateralisation agreement addresses practical requirements registered as part of the extension of the automatic collateralisation agreement to include credits in connection with payment systems, which took effect on 1 April 2001. The proposal promotes a more efficient use of securities pledged as collateral for credit in connection with securities settlement and payments. Danmarks Nationalbank supports this proposal on the grounds that the proposal allows a certain degree of flexibility in the technical implementation of the settlement procedure, so that an automatic collateralisation agreement may be established some time prior to a settlement within the current overall framework for the automatic collateralisation agreement of maximum 24 hours. [1] See also Birgitte Bundgaard and Suzanne Hyldahl, Structure of the Banks' Capital – New Statutory Requirements and Opportunities, Danmarks Nationalbank, Monetary Review, 3rd Quarter 2002.

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The Statutory Basis for the Financial Sector

Directives, etc.

Acts, etc.

Consultation responses