Denmark’s financial watchdog has flagged up a potential loss of saver confidence in the Nordic country’s pension providers as a “particularly relevant” risk facing the financial sector. This is due to the increasing number of unguaranteed products that are available combined with last year’s plunging financial markets.

In its latest half-yearly risk report published this morning, outlining what it believes are the prevailing risks in the financial sector, the Danish Financial Supervisory Authority (FSA, Finanstilsynet) said: “The significant spread of unguaranteed products in the pension area can cause pension customers to distrust the pension companies if risks materialise and customers are not aware that they themselves bear that risk.”

Turning to the investment sector, the Copenhagen-based authority said mis-selling of investment products to a target group for which those products were not suitable could lead to mistrust among customers.

“Growth in the number of investors can – in combination with greater complexity in products and lack of investor protection in certain areas, including alternative investment funds – increase the risk of lawsuits, which may lead to distrust,” the FSA said.

The FSA said its vision was one where companies and citizens had well-founded trust in the financial system, but that in recent years, various incidents among financial companies had caused cracks in the confidence that was “the foundation of financial business.”

It said there had been a number of cases where banks had failed to behave in a good and proper manner and in accordance with applicable regulations, and regarding insurers, said that the practice of setting prices favouring new customers – rather than the interests of existing policyholders – could lead to public mistrust of the firms.

The Danish FSA is taking action to tackle the risk of ebbing confidence in pension providers by focusing on pension companies’ handling of non-guaranteed pension products.

This includes assessing its position on and management of the products, as well as communication to customers about the risks associated with them, the FSA said.

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