Denmark, still recovering from a $230 billion money laundering scandal at Danske Bank, is going to propose new ways for its financial regulator to stop being so close to the banks that it supervises, according to a report in Financial Times.
The concern is based around the idea of regulatory capture, where an authority is heavily influenced by the sector it is supposed to regulate.
Denmark’s Business Minister Rasmus Jarlov said the government would look into ways to strengthen and separate the Financial Supervisory Authority (FSA) at the beginning of the new year.
Jarlov said that regulatory capture, as well as the question of whether Danske Bank was too big to fail, were worth considering. “It’s a fair point, and surely it’s something that we are also discussing: how we can ensure that we don’t have ties that are too close between the financial sector and the authorities,” he said.
Some people, including whistleblower and former Danske executive Howard Wilkinson, have criticized the FSA’s response to the scandal, saying it appeared the organization was trying to protect the bank. Also, the FSA’s former Chairman Henrik Ramlau-Hansen used to be Danske’s finance director.
Danske’s share price actually rose when Jesper Berg, the current director, said the estimated fines were probably inflated.
“When you are under heavy scrutiny, to do this smacks of regulatory capture,” someone involved in the Danske investigation told the Times.
Jarlov said he has a lot of work to do to ensure the process is fair.
“We are considering this challenge [of regulatory capture]. We have not decided on specific measures. During the beginning of 2019, we will do a lot of work to strengthen the FSA in Denmark, based on the experience of this case and also based on the experience of other countries,” he said. “We have specifically asked for a neighbor check on this challenge: how to have the right balance between getting competent people from the banking sector into the authorities without having [conflicts of interest].”
Berg denied any wrongdoing. “I think people who know us just a little bit would know that the integrity in this institution is incredibly high, by any standard,” he said.