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Danish FSA increases board expectations for pension funds

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  • Danish FSA increases board expectations for pension funds

DENMARK – Denmark's financial regulator has unexpectedly sharpened its board competence demands for pension funds, now saying the organisations must have two board members with day-to-day management experience from a relevant financial firm – not just one.

The Danish FSA (Finanstilsynet) included the stricter requirement in the results of its industry-wide inquiry into the skills and experience on the boards of the country's financial institutions, which was launched last July.

In a statement on the results, the FSA said: "In relation to life insurance companies and pension funds, the FSA finds that the investment and insurance area is so central that one member alone can not cover board knowledge and experience in these risk areas.

"Therefore, there should always be at least two people on a board who can together cover the required knowledge."
 
This assessment was independent of company size, it said, adding that it believed company size did not affect the complexity of the business model.

To help a board meet the requirements, a director must have skills in key areas of risk in the form of appropriate training or practical work experience, the FSA said.

Based on these new criteria, the FSA said it told 18 life insurance and pension companies that they should have two members of the board with sufficient insight into investment and insurance areas in future.

These changes should be made in connection with the next annual general meetings, it said.

However, based on the original criteria announced when the inquiry was launched last year, all but three pension funds were shown to be compliant.

The FSA said the results showed that, of the 19 companies in its sights, 16 already met the requirement.

Companies covered by the original requirement are life insurers and pension funds with more than DKK30bn (€4bn) in assets.

Speaking about financial institutions generally, Ulrik Nødgaard, director of the FSA, said: "The way it looks at the moment, a large number of boards will make adjustments to the composition of their personnel, which will generally strengthen the strategic overview and boards' ability to challenge directors."

The changes that would happen at AGMs were an important first step, he said.

"In the meantime, we will follow developments at companies closely and over the next few years, and take new initiatives if necessary," he said.

The pensions industry association Forsikring & Pension (F&P) said the results were positive, with almost all affected companies in the sector fulfilling the FSA's original demand.

But Per Bremer Rasmussen, managing director of F&P, said he was surprised by the new demand for two board members with sufficient knowledge of investment and insurance.

"This is a completely new demand, which is coming in now without us having heard about it," he said.

"We must find out exactly what this means so we can discuss it with the regulator."

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