Decision on whether a Board Member met the Fit and Proper Requirements

Date 21 dec. 2012
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Introduction

On 17 December 2012, the Danish Financial Supervisory Authority (the ”FSA”) ruled that a board member in a life insurance company (the “Financial Institution”) did not fulfill the fit and proper requirements of the Danish Financial Business Act, Section 64(2), paragraphs 3 and 4, and therefore the person (the “Board Member”) could not be approved as board member in the Financial Institution. The case has been presented in the Financial Council.


Summary of the Case

The Board Member has served on the board in the Financial Institution while at the same time serving on the board of a Fund (Hereafter the “Fund”).


The Fund has had an aggregated engagement of significant volume in the Financial Institution. In connection with an inspection in the Financial Institution conducted in the spring of 2012, the Danish FSA noted an objective indication of impairment on the engagement with the Fund. Based on the notification, the Danish FSA ordered the Financial Institution to conduct impairment losses on the engagement.


The Board Member served on the board of the Fund which inflicted losses on the Financial Institution in the form of impairment losses on the engagement. At the same time, the Board Member served on the board in the Financial Institution and according the Danish FSA, the Board Member therefore violated the prohibition on members of management to inflict losses or risk of losses on the financial institution of which they served on the board.


The legal Basis

The Danish Financial Business Act, Section 64 contains a variety of fit and proper requirements to board members in financial institutions.


It is stated in the Danish Financial Business Act section 64 (2), paragraph 4, that a member of the Board of Directors in financial institutions cannot perform his duties as a board member if the person’s conduct gives reason to believe that he will not be able to perform the task as board member in a responsible manner.


The assessment of whether the Danish Financial Business Act, Section 64 (2), paragraph 4, has been violated must be conducted based on an overall assessment of the person’s conduct during the time that the person has served in the relevant position.


Further, it is stated in the Danish Financial Business Act Section 64 (2), paragraph 3, that a board member in a financial institution cannot perform the tasks as board member if the person concerned has inflicted or will inflicted losses or risk of losses on the financial institute due to his financial situation or via his participation in the running of a company.


The Danish FSA is competent to order a board member in a financial institution to resign from his position if the person according to
the Danish Financial Business Act, Section 64 (2), cannot serve in the position, cf. The Danish Financial Business Act, Section 351 (2).

 

The Ruling

It was the Danish FSA’s opinion that the Board Member in his function as a board member in the Fund has been involved in the management of the company whose activities have caused impairments of engagement and hence losses to the Financial Institution. According to the Danish FSA, this conflicted with the provisions in the Danish Financial Business Act Section 64 (2) paragraphs 3 and 4.


Based on the above, the Danish FSA found that the Board Member did not meet the fit and proper requirements which are required in order to be a part of the management of a financial institution.


 

Should you have any questions or wish further information on the above, please contact partner, David Moalem (dam@mwblaw.dk), junior associate Maria Thomsen (mth@mwblaw.dk ) or junior associate Ted Rosenbaum (tro@mwblaw.dk).


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 or considerations.