Opinion of the European Central Bank of 2 February 2001 at the request of the Danish Ministry of Economic Affairs on a draft law on financial services (CON/00/32)
Date: 2001-02-02
Institutions: European Central Bank
Subjects: Denmark, broker, central bank, financial institution, financial services, financial stability, holding company, insurance company, real estate credit, simplification of legislation

OPINION OF THE EUROPEAN CENTRAL BANK

of 2 February 2001

at the request of the Danish Ministry of Economic 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  financial

services (draft law). Subsequently, the draft law has been revised and on 22 January 2001, the ECB

received 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 sixth

indent 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  provisions1,  as  the

draft law contains rules applicable to financial institutions which would have a material influence

on  the  stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of

Article 17(5)  of  the  Rules  of  Procedure  of  the  ECB,  this  opinion  has  been  adopted  by  the

Governing 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,  thereby

improving transparency and consistency. The draft law combines equivalent supervisory measures

and  other  statutory  provisions  in  the  Commercial  Banks  and  Savings  Banks  Act,  the  Act  on

Insurance 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 provisions

in 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  services

legislation. Likewise, the ECB welcomes the intention to review at a later stage the other parts of

the financial acts with a view to further developing a unified structure and increased simplification

of e.g. the provisions concerning the establishment of financial undertakings, authorisation to take

up 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  associated

undertakings.  Thus,  it  defines  financial  undertakings  (consisting  of  stockbroking  companies,

insurance  companies,  commercial  banks  and  mortgage  credit  institutions),  credit  institutions,

financial institutions,  parent companies, subsidiary  companies and  groups  together  with  financial

holding companies. It  is  noted  that the  definitions  of  credit institutions,  financial institutions  and
parent  and  subsidiary  companies  are  in  accordance  with  the  relevant  Community  directives2.
‘Financial  undertakings’  is  a  new  concept,  but  is  at  the  same  time  not  to  be  regarded  as  a  new

category of undertaking but as covering the above mentioned financial entities (which are all still

individually  defined  in  existing  laws  incorporating  Community  legislation).  The  scope  of

application  of  the  draft  law’s  provisions  on  supervision  is  extended  to  include  financial  holding

companies. According to the draft law, the Financial 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  is

obviously apt to simplify and increase the transparency of this legislation.

5. 

The  draft  law  stipulates  that  financial  undertakings  and  financial  holding  companies  should  be

operated in accordance with fair business practice and best practice in the relevant sector, and the

scope of undertakings which are already subject to similar provisions, is hence broadened to cover

also  stockbroking  companies  and  financial  holding  companies.  The  provisions  in  the  draft  law

require that the rules for best business practice be observed within each business area. The concept

of  fair  and  best  practice  is  to  be  understood  in  accordance  with  current  practice,  but  the  FSA  is

competent  to  issue  guidelines  and  executive  orders  concerning  such  practice  and,  thus,  has  the

possibility  of  developing  the  concept  further.  These  rules  apply  to  all  financial  undertakings

operating in Denmark, be it as a Danish financial undertaking or as a branch. It is also proposed

that they should apply to financial services provided by foreign financial undertakings. The ECB is

of  the  opinion  that  in  adopting  the  rules,  particular  attention  might  be  paid  to  their  convergence

with 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  may

transfer  normal  information  on  customers  is  replaced  by  provisions  regulating  the  transferral  of

such information for administrative purposes, including outsourcing, as well as for marketing and

counselling purposes. The ECB notes that the confidential nature of the information is maintained

irrespective  of the transferral,  and  that the receivers of  such  information  are  also  covered  by  the

scope  of  the  professional  secrecy.  Furthermore,  the  safeguard  established  by  the  requirement  to

obtain  the  consent  of  the  customer  for  transfers  of  customer-related  information  for  marketing

purposes or, in order to offer customer counselling, should also be noted. The possibility to transfer

information, which does not concern strictly private matters, to the parent company of a financial

undertaking  for  use  in  the  group’s  risk  management  is  maintained,  provided  that  the  parent

company is a regulated financial undertaking or a financial holding company. The requirement to

obtain  a  consent  does  not  apply  where  the  transfer  of  ‘general  data’  takes  place  between

undertakings  within a  group  subject  to  professional  secrecy.  General  data  is  understood  to  mean

information concerning the name, address and residential status. Furthermore, the general data will

have to (i) provide the basis for classification of customers; or (ii) be necessary for the receiving

company to pursue justifiable interests. Such interests 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 and

where the regard to the customer does not  exceed  this interest.  Information  about strictly  private

matters may under no circumstances be transferred without the consent of the customer. Finally, it

is also noted that the formal requirements for customer consent are strengthened. In the future, the

consent  shall  be  in  a  written  form,  including  in  digital  form,  and  in  order  to  establish  enhanced

transparency, the financial undertakings are obliged to annually inform all customers of the scope

of 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 prohibition

of  speculative  transactions,  provisions  concerning  loans  granted  to  members  of  the  board  of  a

financial  entity  covered  by  the  draft  law  represents  a  harmonisation  of  equivalent  provisions  in

existing financial legislation. Certain provisions have extended their scope of application, such as

the requirement  to  use  written procedures for all  important  areas of  activities,  which  then  would

also 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  relation  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 to

apply  to  all  groups  subject  to  supervision.  The  groups  must  comply  with  the  capital  adequacy

requirements  of  legislation  on  financial  supervision  on  a  consolidated  basis.  In  general,  the

consolidation applies solely to the capital adequacy requirements, although credit institutions and

stockbroking  companies  are  subject  to  additional  provisions  concerning  large  exposure,

shareholdings, liquidity, etc. to be complied  with  on  a  consolidated  basis.  Finally,  the  provisions

concerning  intra-group  transactions  and  intervention  by  the  FSA  vis-à-vis  group  structures  have

also been consolidated and harmonised. The ECB views the application of the above rules, notably

on 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  viewed

positively. 

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 the

latest  developments  in  the  accounting  area,  to  the  extent  that  this  is  in  line  with  Community

directives concerning financial services, in addition to the recently adopted Community accounting

strategy based on international accounting standards (IAS) issued by the International Accounting

Standards  Committee  (IASC).  The  provisions  in  question  concerning  annual  reports,  annual

accounts and auditing should, according to the general comments made in the draft law, be viewed

in  conjunction  with  equivalent  new  provisions  concerning  stock-exchange  listed  companies  in

general,  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 the

presentation of accounts. At present, accounting provisions are contained in the respective special

financial  legislation  and  executive  orders  issued  by  the  FSA.  The  provisions  in  the  draft  law

replace the accounting provisions with general provisions concerning presentation of accounts and

they  will  be  supplemented,  as  is  the  case  under  existing  legislation,  with  detailed  accounting

provisions 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  value

principle’ is introduced and the entry into force of the chapter on accounting has been postponed in

order to assess the effect of the introduction of the above mentioned principle on the valuation of

lending by credit institutions in particular. The ECB understands that further consideration will be

given  to  the  question  of  whether,  and  if  so  where,  the  executive  orders  could  deviate  from  the

general  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 a

way 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 in

the principles to be applied to loan valuation by credit institutions. While the ECB welcomes steps

aiming  at  a  further  harmonisation  and  an  increase  in  the  comparability  and  transparency  of  the

accounting  practices  in  the  financial  services  sector,  the  ECB  would  like  to  encourage  a  close

monitoring  and  assessment  of  the  impact  of  changes  in  this  area  on  the  financial  situation  of

financial undertakings, notably credit institutions. The ECB believes that a common strategy by as

many Member States as possible would be desirable in this field. 

11. 

It  is  noted  that  the  draft  law  allows  for  confidential  information  to  be  given  to  the  Danmarks

Nationalbank and foreign central banks where the information is necessary for the central banks in

their capacity as monetary policy authorities or in their oversight of payment systems.  While the

ECB recognises that this provision maintains existing legislation, it suggests, for reasons of legal

clarity, to reflect in this provision the establishment of the European System of Central Banks and

of the ECB. In particular, a clarification that the 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