OPINION OF THE EUROPEAN CENTRAL BANK
of 2 February 2001
at the request of the Danish Ministry of Econom ic Affairs on a draft law on financial services
(CON/00/32)
1. On 22 December 2000 the European Central Bank (ECB) received a request via Danmarks
Nationalbank from the Ministry for Economic Affairs for an opinion on a draft law on financialservices (draft law). Subsequently, the draft law has been revised and on 22 January 2001, the ECBreceived a request to take the revised draft law into account when drafting the opinion.
2. The ECB’s competence to deliver an opinion is based on the second indent of Article 105(4) of the
Treaty establishing the European Community (hereinafter referred to as the ‘Treaty’) and the sixthindent of Article 2(1) of Council Decision No  98/415/EC of 29 June 1998 on the consultation of
the European Central Bank by national authorities regarding draft legislative provisions
1, as the
draft law contains rules applicable to financial institutions which would have a material influenceon the stability of financial institutions and markets. In accordance with the first sentence ofArticle 17(5) of the Rules of Procedure of the ECB, this opinion has been adopted by theGoverning Council of the ECB. 
3. The ECB welcomes the draft law as it aims at ensuring uniform treatment of equivalent financial
products, and introduces a number of simplifications and modernisation measures, therebyimproving transparency and consistency. The draft law combines equivalent supervisory measuresand other statutory provisions in the Commercial Banks and Savings Banks Act, the Act onInsurance Companies, the Act on Stockbroking Companies, the Mortgage Credit Act and the Act
on Company Pension Funds into one Financial Services Act. It is noted that some of the provisionsin question are adjusted in a number of respects (in terms of wording and general harmonisation),whereas other provisions are generally updated. On the other hand, it is proposed to retain, at
                                                     
1 OJ L 189, 3.7.1998, p. 42.
present, the special characteristics of each financial sector in the sector-specific acts. The ECB
welcomes the measures aimed at simplifying and increasing consistency of the financial serviceslegislation. Likewise, the ECB welcomes the intention to review at a later stage the other parts ofthe financial acts with a view to further developi ng a unified structure and increased simplification
of e.g. the provisions concerning the establishment of financial undertakings, authorisation to takeup business as a financial undertaking, solvency and mergers.
4. The draft law contains uniform definitions, which will apply to the individual types of business
undertaking, which are subject to supervision, as well as to financial institutions and associatedundertakings. Thus, it defines financial undertakings (consisting of stockbroking companies,insurance companies, commercial banks and mortga ge credit institutions), credit institutions,
financial institutions, parent companies, subsidiary companies and groups together with financialholding companies. It is noted that the definitions of credit institutions, financial institutions andparent and subsidiary companies are in accord ance with the relevant Community directives 2.
‘Financial undertakings’ is a new concept, but is at the same time not to be regarded as a newcategory of undertaking but as covering the above mentioned financial entities (which are all stillindividually defined in existing laws incorporating Community legislation). The scope ofapplication of the draft law’s provisions on supervision is extended to include financial holdingcompanies. According to the draft law, the Fina ncial Supervisory Authority (FSA) may thus also
collect information from and carry out inspections of these companies. The introduction of all-encompassing definitions in one legal act is seen favourably by the ECB, since this measure isobviously apt to simplify and increase the transparency of this legislation.
5. The draft law stipulates that financial undertak ings and financial holding companies should be
operated in accordance with fair business practice and best practice in the relevant sector, and thescope of undertakings which are already subject to similar provisions, is hence broadened to coveralso stockbroking companies and financial holdin g companies. The provisions in the draft law
require that the rules for best business practice be observed within each business area. The conceptof fair and best practice is to be understood in accordance with current practice, but the FSA iscompetent to issue guidelines and executive orders concerning such practice and, thus, has thepossibility of developing the concept further. These rules apply to all financial undertakingsoperating in Denmark, be it as a Danish financial undertaking or as a branch. It is also proposedthat they should apply to financial services provided by foreign financial undertakings. The ECB isof the opinion that in adopting the rules, particular attention might be paid to their convergencewith respective rules of other countries so as to ensure high standards in business practices. Close
                                                     
2 The ECB draws attention to the fact that it did not evaluate the compatibility of the draft law in this opinion
with Community directives that may be applicable.
cooperation with the respective rule-making authorities of other Member States is encouraged by
the ECB in order to achieve a high degree of convergence of practices throughout the Community.
6. The draft law contains several provisions amending provisions in the existing financial legislation
on professional secrecy. Thus, the existing rule that financial undertakings within a group maytransfer normal information on customers is replaced by provisions regulating the transferral ofsuch information for administrative purposes, including outsourcing, as well as for marketing andcounselling purposes. The ECB notes that the confidential nature of the information is maintainedirrespective of the transferral, and that the receiv ers of such information are also covered by the
scope of the professional secrecy. Furthermore, the safeguard established by the requirement toobtain the consent of the customer for transfers of customer-related information for marketingpurposes or, in order to offer customer counselling, should also be noted. The possibility to transferinformation, which does not concern strictly private matters, to the parent company of a financialundertaking for use in the group’s risk management is maintained, provided that the parentcompany is a regulated financial undertaking or a financial holding company. The requirement toobtain a consent does not apply where the transfer of ‘general data’ takes place betweenundertakings within a group subject to professional secrecy. General data is understood to meaninformation concerning the name, address and residential status. Furthermore, the general data willhave to (i) provide the basis for classification of customers; or (ii) be necessary for the receivingcompany to pursue justifiable interests. Such inte rests will only be considered to be justifiable if
the transferral is necessary in order to undertake the task, which is the reason for the transferral andwhere the regard to the customer does not exceed this interest. Information about strictly privatematters may under no circumstances be transferred without the consent of the customer. Finally, itis also noted that the formal requirements for customer consent are strengthened. In the future, theconsent shall be in a written form, including in digital form, and in order to establish enhancedtransparency, the financial undertakings are obliged to annually inform all customers of the scopeof the consent obtained. A consent already made may be withdrawn at any point in time.   
7. The provisions in the draft law, which govern  management related issues, i.e. provisions
concerning management obligations as well as the freedom to hold other functions, the prohibitionof speculative transactions, provisions concerning loans granted to members of the board of afinancial entity covered by the draft law represents a harmonisation of equivalent provisions inexisting financial legislation. Certain provisions have extended their scope of application, such asthe requirement to use written procedures for all important areas of activities, which then wouldalso apply to insurance companies once the draft law has been adopted by Parliament.
8. It is noted that the provisions in existing legislation governing groups are consolidated by the draft
law. A few amendments have been made in relatio n to the existing rules, to ensure that the
consolidated statements are true and fair. Certain subsidiaries of insurance companies will not be
included in the consolidation, and it will exclude capital paid up by companies in the group that are
not included in the consolidated group accounts. Furthermore, a general provision is introduced toapply to all groups subject to supervision. The groups must comply with the capital adequacyrequirements of legislation on financial supervision on a consolidated basis. In general, theconsolidation applies solely to the capital adequacy requirements, although credit institutions andstockbroking companies are subject to additional provisions concerning large exposure,shareholdings, liquidity, etc. to be complied with on a consolidated basis. Finally, the provisionsconcerning intra-group transactions and intervention by the FSA vis-à-vis group structures havealso been consolidated and harmonised. The ECB views the application of the above rules, notablyon capital requirements, as a very important element in the supervision of financial services groups.The clarification of the scope of application of the respective rules on a group basis is viewedpositively. 
9. The ECB notes that the provisions governing accounting-related matters have been amended
(compared to the existing provisions) in conjunction with the consolidation, to take into account thelatest developments in the accounting area, to th e extent that this is in line with Community
directives concerning financial services, in addition to the recently adopted Community accountingstrategy based on international accounting standard s (IAS) issued by the International Accounting
Standards Committee (IASC). The provisions in question concerning annual reports, annualaccounts and auditing should, according to the general comments made in the draft law, be viewedin conjunction with equivalent new provisions concerning stock-exchange listed companies ingeneral, and against the background of recent international development in the accounting field.Financial undertakings are not subject to the general provisions concerning annual reports and thepresentation of accounts. At present, accounting provisions are contained in the respective specialfinancial legislation and executive orders issued by the FSA. The provisions in the draft lawreplace the accounting provisions with general provisions concerning presentation of accounts andthey will be supplemented, as is the case under existing legislation, with detailed accountingprovisions for each specific type of undertaking.
10. On a technical level, the draft law represents a change from so-called transaction based accounts in
favour of accounts based on the current value of assets and liabilities. Thus, the ‘fair valueprinciple’ is introduced and the entry into force of the chapter on accounting has been postponed inorder to assess the effect of the introduction of the above mentioned principle on the valuation oflending by credit institutions in particular. The ECB understands that further consideration will begiven to the question of whether, and if so where, the executive orders could deviate from thegeneral rule (a consideration especially in relation to credit institutions’ lending portfolio).Furthermore, the ECB understands that exemptions from the general rule will be applied in such away that the existing valuation provisions are amended only so as to extend the application of fair
value when Community directives allow for the full application of the principle. The draft law may,
at a certain stage, result in significant changes in accounting for financial undertakings, notably inthe principles to be applied to loan valuation by credit institutions. While the ECB welcomes stepsaiming at a further harmonisation and an increase in the comparability and transparency of theaccounting practices in the financial services sector, the ECB would like to encourage a closemonitoring and assessment of the impact of changes in this area on the financial situation offinancial undertakings, notably credit institutions. The ECB believes that a common strategy by asmany Member States as possible would be desirable in this field. 
11. It is noted that the draft law allows for conf idential information to be given to the Danmarks
Nationalbank and foreign central banks where the information is necessary for the central banks intheir capacity as monetary policy authorities or in their oversight of payment systems. While theECB recognises that this provision maintains existing legislation, it suggests, for reasons of legalclarity, to reflect in this provision the establishment of the European System of Central Banks andof the ECB. In particular, a clarification that th e ECB is within the scope of the provisions would
be welcomed.
12. The ECB confirms that it has no objection to this opinion being made public by the competent
national authorities at their discretion.
Done at Frankfurt am Main on 2 February 2001.
The President of the ECB
[signed]
Willem F. DUISENBERG