New Danish risk-categorisation of exchange traded funds

Date 12 jul. 2011


Following numerous requests from the industry, the Danish FSA has recently allowed ETFs to be classified as category “yellow” investment products, i.e. investment products, which are not difficult to understand but involve a risk of losing the invested amount. Previously, the FSA held that ETFs, regardless of the actual risk, should be classified as category “red” investment products, i.e. products which are difficult to understand and/or involve a risk of losing more than the invested amount.

When considering this change it should be noted that even though Danish investment associations and most ETFs are both comprised by the UCITS directive, Danish investment association certificates have been (and still are) placed in the “yellow” category. Accordingly, the change in classification puts the two types of investment products on an equal footing for the purposes of said classification.


It is thus to be expected that it will be easier to market ETFs towards retail investors and that ETFs accordingly will grow in popularity as investment products in Denmark.


The following provides a brief overview of the changes along with the requirements a foreign ETF (comprised by the UCITS directive) must comply with in order to be marketed towards Danish retail investors.


The Danish executive order on risk-labeling:

Under the Danish executive order on risk-labeling of investment products, certain financial undertakings and investment advisors must assign one of the following risk labels to the types of investment products they facilitate or for which they provide investment advice:

Green: The risk of losing the whole amount invested is considered very small, if the investment is held to maturity. Further, this product type is not difficult to understand.

Yellow: There is a risk of losing all or part of the amount invested. However, this product type is not difficult to understand.

Red: There is a risk of losing more than the amount invested or the product types are difficult to understand.

Said executive order has been in force since 29 April 2011 and applies to Danish and foreign financial businesses which facilitate purchases of investment products to retail clients in Denmark, and also applies to Danish and foreign investment advisors doing business in Denmark. The rules also apply to financial businesses run through subsidiaries.

The background of the risk-labeling requirement:

The risk-labeling requirement is designed to help retail investors get an overview of the risk involved with the investment and a general impression of the complexity of the product.

The categorization is based on the general risk and transparency level of the product type in question, and not on an assessment of the specific product. This means that there might be investment products with different risks within the same category.

The difference between the investment products in the yellow and in the red category is that the investment advisors must have a specific education and training to be able to give advice about the investment products in the red category.


ETF marketing requirements:

If a foreign investment undertaking covered by the UCITS directive wishes to market its activities in Denmark, it the Danish FSA must be notified thereof in accordance with the procedure set out in said directive and applicable Danish legislation. The foreign investment undertaking must contact the supervisory authority of its home country which will manage the notification procedure to the Danish FSA.


The investment undertaking must indicate the type of investors (e.g. retail or professional investors) to whom the marketing is directed. Further, certain information must be made available to the investors in a prospectus or addendum thereto.


Detailed information regarding the registration process is available in English on



If you have any questions or require any additional information on the above, please contact partner Dan Moalem ( or attorney Henning Hedegaard Thomsen (


The above does not constitute legal counselling 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.