DENMARK – The Danish pensions industry has reacted to government plans to facilitate corporate bond issuance in the country by saying they fail to give investors enough protection.

Carsten Andersen, deputy director of industry association Forsikring & Pension (F&P), said: "The proposal quite fundamentally lacks regard for investor protection.

"For example, there is no assurance price setting will take place on an objective basis, no safeguard enabling investors to check the agreements will be obeyed or that the quality of the assets will comply with the objectives in the prospectus upon replacement."

The Danish government has been working on plans to increase financing sources for the country's small and medium-sized businesses, as banks have reined in their lending operations in the wake of the global financial crisis.

F&P said there were several problems in the model outlined in the proposal, which did not exist in the individual issuance of corporate bonds.

"It is pension customers' money we are investing," Andersen said. "So we must be sure pension companies don't end up becoming a car park for the bad loans of the financial institutions."

In June, as part of the Danish government's plan for growth, the Ministry for Business and Growth published a draft law, which it said created a better framework for Danish financial institutions to issue securities safely within pools of commercial loans.

Being able to securitise commercial loans could make it more attractive for the institutions to lend to businesses, it said.

The draft law also made it easier to use so-called representatives for bond issuance in Denmark, the ministry said, adding that this could make it more attractive to buy corporate bonds, thereby supporting the development of a market for the instruments in the country.

Andersen said that if basic investor protection were not in place, it was uncertain whether corporate bonds would end up financing smaller businesses.

However, the association said it supported the proposal to be able to use representatives for bond issuance.

The Danish corporate bond market is already developing well, F&P said, with bonds now used by medium-sized companies where once only large firms were able to issue.

Representatives could prove useful in possible bankruptcies among other things, and this will give investors new options that already exist in neighbouring countries, it said.

"Pension companies are basically positive about the prospect of contributing to the financing of the country's businesses by investing in corporate bonds," Andersen said.

But this is on condition that the return matches the risk of bonds, he said.

"We must know what we are investing Danes' pension money in," he said.