“We take the criticism expressed by the FSA very seriously,” says Thomas F. Borgen, CEO. “We agree that we should have understood the depth and scope of the problems in Estonia at an earlier stage and should have reacted faster and more forcefully. As the FSA’s decision states, beginning in 2014, we took a number of initiatives to reduce the risk and improve controls. But today, it is also clear that we did too little too slowly. There is unfortunately nothing we can do to change that. Instead, we need to ensure that it cannot happen again. That is one of the reasons why we launched thorough investigations in autumn 2017.”
The wording of the orders and reprimands is given in the FSA’s decision document ‘Danske Bank’s management and governance in relation to the AML case at the Estonian branch’ of 3 May 2018, which is enclosed with this company announcement.
Anti-money laundering measures
The non-resident portfolio in Estonia, to which the problems relate, has been closed down, and in recent years, Danske Bank has invested massively in compliance activities:
“As the FSA also states, we have strengthened our AML efforts in recent years,” says Thomas F. Borgen. “Today, Danske Bank has more than 900 employees working to combat financial crime. Our governance and control functions have been significantly strengthened and we have made considerable IT investments and have strengthened competencies in a number of support functions. Today, the situation is quite different from what it was at the time. So we believe that we have come a long way towards addressing the issues covered by the orders. Now we need to work resolutely and systematically to ensure that we comply with all orders.”
Moreover, after the organisational changes announced on 6 April this year, the Compliance unit reports directly to the CEO.
Order to reassess the solvency need
Among other things, the Danish FSA orders the Board of Directors and the Executive Board to reassess the bank’s and the banking group’s solvency need in order to ensure an adequate internal capital coverage of compliance and reputational risks as a result of weaknesses in the bank’s governance. The FSA initially estimates that a Pillar II add-on should amount to at least DKK 5 billion, or about 0.7% of the REA (risk exposure amount) at the end of 2017. An add-on of DKK 5 billion will increase the Group’s solvency need from 10.5% to 11.2% calculated at 31 March 2018. The increased solvency need should be viewed in light of a total capital ratio of 21.4% at 31 March 2018. The Group will thus continue to have a considerable solvency buffer.
Ongoing investigations
Danske Bank earlier concluded that, in the period from 2007 to 2015, it was not sufficiently effective in preventing the branch in Estonia from potentially being used for money laundering and that this was due to critical deficiencies in governance and controls. As a result, comprehensive investigations into conditions at the Estonian branch during the period in question were launched in the autumn of 2017. The investigations focus on two separate things: A thorough review of customers and transactions during the period, and an examination of the course of events, including whether managers and employees lived up to their responsibilities to a sufficient degree. The investigations are expected to be completed in September 2018 at the latest.
Danske Bank
Read the FSA decision re Danske Bank 3 May 2018