Danish Financial InstitutionsDownload PDF version
The legal framework pertaining to financial institutions in Denmark is primarily based on EU legislation. The Danish Financial Supervisory Authority (the “Danish FSA”) supervises the financial institutions.
The Danish financial sector is subject to intensive regulation. The main source of regulation is the Danish Financial Business Act which is supplemented by several executive orders and provisions contained within other acts.
Foreign financial Entities in Denmark
Danish law provides a number of options for entities wishing to carry out or market financial services in Denmark. Subject to certain requirements, these activities may be carried out through a branch or on a cross-border basis. The financial entity may also choose to establish a Danish company for the purpose.
The requirements for carrying out activities in Denmark depend on the nationality of the financial institution in question. In general, the described activities are subject to a licensing requirement. In compliance with EU legislation and EU principles, financial institutions within the EU/EEA may carry out such activities to which they have obtained the relevant license from their home country without obtaining a separate Danish license. However, it is a condition that the Danish FSA has received prior notification from the relevant authority in the home land of the financial institution which supervises the foreign entity in question.
An entity which has obtained a license from a country outside of the EU/EEA is required to obtain a Danish license from the Danish FSA prior to carrying out the relevant business activities in Denmark.
Regardless of how a foreign financial entity chooses to carry out activities in Denmark, attention should be paid to the general legislation applying to financial institutions, including the rules on conduct and good practice.
Types of financial Undertakings
The Danish Financial Business Act defines the following types of financial undertakings:
Danish companies receiving deposits from the public or other funds to be repaid must obtain a banking license.
These institutions, along with certain foreign credit institutions, have exclusive rights to issuing mortgage-credit bonds.
Investment management companies
These companies have the exclusive right to managing certain investment associations, special-purpose associations, restricted associations and hedge associations.
The activity of these types of companies consists of the performance of certain types of investment activities for third parties. A Danish company not licensed as a bank, mortgage-credit institution or an investment management company is considered as an investment company and must obtain a license as such. The provisions pertaining to investment companies are based on the MiFID-directive.
Companies carrying out insurance activities must have obtained a license from the Danish FSA to do so. Exceptions apply to certain special types of undertakings.
In addition to the above and in accordance with the MiFID-directive, financial institutions or undertakings offering financial investment advisory services, such as the provision of personal advice regarding investment in certain instruments, are required to obtain a license to do so from the Danish FSA. Generally, the rights of EU/EEA entities to carry out activities on a cross-border basis and by establishing a branch also apply to these entities.
License from the Danish FSA
Each institution is required to obtain a license from the Danish FSA before commencing operations. The license must comprise the activities to be carried out. The Danish Financial Business Act contains a comprehensive list of the activities which companies subject to license requirements are allowed to carry out and for which a license may be obtained.
Generally, the undertaking is only allowed to carry out such business for which it has obtained a license as well as certain ancillary operations as outlined in the Danish Financial Business Act. Since a license may only be obtained to carry out the activities listed in the Danish Financial Business Act, an undertaking having obtained a license is generally prohibited from carrying out activities not provided for in the license, unless such activities are considered as ancillary activities.
Regulation of collective Investment Schemes
Danish collective investment schemes may be organised in a number of ways. Collective investment schemes are a way of investing alongside other investors in order to benefit from the advantages of working as part of a group. The regulation is divided into the Investment Associations Act which regulates UCITS etc. and the Act on AIFM which is based on the AIFM Directive on the marketing of alternative investment funds.
The Act on AIFM regulates the fund managers rather than the funds that they manage and market, as it is the AIFM that is responsible for all key decisions in relation to the AIF (Alternative Investment Fund). An AIF is defined as any collective investment undertaking, including investment compartments thereof, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors. An AIFM is subject to authorisation by its home EU member state/state of reference (the relevant FSA), whereas the AIFs will not be subject to such requirements.
Once an AIFM has been authorised, the authorisation is, as a main rule, valid for management of AIFs in all EU member states and - subject to fulfilment of separate conditions - marketing of units or shares in such AIFs in the EU.
In Denmark, UCITS are a generic term for investment funds, SIKAVs and securities funds. The funds are invested in financial instruments (securities) under the principle of risk diversification. There are rules as to which financial instruments and businesses a UCITS may invest in in order to ensure that the risk is diversified.
It is a characteristic of a UCITS that it may receive funds from a group of investors or the public, that it must place the funds so that there is diversity in its investments and that the risk is minimised and that it must redeem the members' shares with funds from assets.
Foreign investment undertakings are allowed to market their entities in Denmark, provided that certain conditions are complied with. If the foreign investment undertaking in question has been approved by a competent authority in another country within the EU or a country with which the EU has entered into an agreement on the financial area in accordance with the UCITS-directive, the entities may be marketed following submission of certain information to the Danish FSA, unless, following submission of the information, the Danish FSA makes a decision to the contrary.
Other foreign investment undertakings not comprised by the UCITS-directive are required to obtain approval from the Danish FSA before marketing their entities. Detailed requirements for obtaining such approval have been laid down by the Danish FSA.
The above does not constitute legal counseling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions of considerations.