By Finn Overgaard, Partner, and Michael Camphausen, Senior Associate, PhD, LETT Law Firm
Over the course of the summer, repeated reports in the Danish press have indicated that approximately one fifth of Danish banks (including commercial, savings and cooperative savings banks) subject to supervision orders by the Danish Financial Supervisory Authority (the DFSA) have apparently not been recipients of an inspection visit from the DFSA for over three years.
These reports prompted critical comment from legislators and the media in Denmark. A perception that the DFSA was failing in the performance of its duties, and that the supervision of banks in Denmark was woefully inadequate, quickly asserted itself in the public consciousness. According to critics, the obvious implication of this inadequate supervision would be that a bank could be in dire financial straits, perhaps even heading for collapse, without the public, or relevant political and financial institutions, being aware of this state of distress; the financial crisis, and recent shortcomings in the Danish financial services sector further were also alleged to be signs that a bank’s own accounts could not be trusted, which highlights the need for regular inspection visits to the banks.
However, an examination of the list of banks that have, according to the Danish press, not been paid any inspection visits during over the past three years reveals a list dominated by a number of small banks – including especially small local savings and cooperative savings banks – a far cry from dominant national banks. Furthermore, the list does not allow for recent developments, such as key mergers, or even newly inspected banks that are yet to receive the findings of their inspection report from the DFSA.
Danish financial supervision of banks is a so-called ‘risk-based supervision’. This means that the DFSA focuses partly on intensively monitoring the most risky activities carried out by banks, and partly on monitoring risky banks to a greater degree than banks that have not assumed such major risks. The principle of risk-based supervision is codified in the Danish Financial Business Act, which stipulates that “organisation of supervision activities shall take materiality into consideration so that the supervision effort is proportionate to the potential risks or damage”.
In other words, the DFSA applies the greatest amount of resources to the banks that are most important in terms of financial stability in Denmark, and to the banks holding the highest risk profile. As a result, a number of less risky banks as well as the smaller banks will indeed find that the DFSA does not pay them regular inspection visits.
Moreover, according to the Financial Business Act, the DFSA is to review the solvency requirements for all banks whose so-called working capital exceeds DKK 250m (approximately EUR 33.5m) annually. In effect, this encompasses all medium-sized to large banks. Consequently, this constitutes regular supervision of the finances of the vast majority of banks even if the DFSA does not pay an actual inspection visit to the individual bank.
Finally, the overall financial supervision of banks consists not only of inspection visits and reviews of the solvency requirements of the individual banks. The DFSA also reviews the reports regularly submitted by individual banks to the DFSA, and may order the management of a bank to arrange for the preparation of additional reports detailing the financial position and prospects of the bank. Recent years have seen a general tightening of financial regulation in the wake of the 2008 crisis, and the requirements for the regular submissions by the banks have been tightened accordingly.
A political issue
Whether to amend the current regulation of the supervision activities is a political issue. This would necessitate further resources to the DFSA, as any major altering of priorities within the present regulatory and political framework will hardly be possible. At least, that seems to be the opinion of both the DFSA and the responsible minister as expressed in brief comments on the above criticism levelled by the press.
However, it should be noted that the market may have other expectations of the frequency of the DFSA inspection visits and that several financial analysts have pointed out that the share price of a bank may also be influenced by, or even depend upon, the length of time elapsed since the most recent inspection visit.
A number of the banks that have not been paid any inspection visit during the last three years have actually stated that they are looking forward to such a visit, as these visits are of interest to investors as well as creditors. Essentially, healthy banks can often expect an increase in their share price as a result of a satisfactory DFSA inspection report, whereas unhealthy banks may face a drop in their share price as a result of an adverse inspection report. And, actually, some of the banks have stated that even an inspection report imposing a number of orders and risk information may, in relation to investors and creditors, be preferable to several years without an inspection report. Hence, they would prefer clarification in the short-term to long-term uncertainty.
This situation is quite a paradox, as banks have traditionally preferred the DFSA not to find any cause to pay an inspection visit and, if it did, preferred the inspection report to be flawless. But it highlights that, in the wake of the financial crisis which brought a large number of failed Danish banks, the market – at least in Denmark – appears to have a continuous agitation to be updated, and may be fragile in the face of any more or less justified uncertainty.
In this context, it is worth highlighting that the recent focus by the press on banks without inspection visits does not seem to have had any effect on the general perception of or attitude towards supervisory efforts in Denmark, and also seems to have entailed no further financial implications for banks or for Denmark as such.
More extensive supervisory powers
Generally, the overall supervisory efforts have intensified considerably in Denmark over the last few years. This is a result of the DFSA being equipped with an array of increasingly extensive supervisory and regulatory powers.
Compared to the financial services landscape pre-2008, far more discretionary and radical powers are available for ensuring financial stability, and preventing further bank failures. As a result, the supervisory role of the DFSA has changed, to the effect that the primary role played by the body is no longer to merely oversee compliance by banks and other financial undertakings with financial legislation. On the contrary, this now seems to be merely a secondary task, which may reflect a fundamental paradigm shift in relation to the traditional perception of the supervisory role. Instead the primary role of the DFSA is now to address the viability of the business model of the individual financial undertaking, a purpose expressly articulated in the Financial Business Act. Consequently, the primary raison d’etre of the DFSA is now to focus on elements related to the business and operation of banks, which were previously the exclusive province of the bank managements.
The actions by the DFSA based on these new and radical powers have led to a highly topical debate in the financial services sector and among Danish politicians as to whether, in wielding its new powers, the DFSA puts banks under far too close scrutiny, particularly in terms of their actual operation and management, resulting in the line between banking supervision on the one hand and bank management and bank operation on the other hand becoming more blurred and unpredictable.
Danish financial stability
It now appears expressly from the Financial Business Act that the DFSA is to organise its routine supervision activities with a view to promoting financial stability and confidence in financial undertakings and markets. The ultimate concern is thus financial stability in a broad macroeconomic sense and no longer only a concern for the individual bank and its depositors in a stricter economic sense.
Furthermore, the DFSA has been given the power to take measures against an individual bank at a far earlier stage than before. Previously, a bank had, in effect, to be in current financial distress (i.e. actually failing to comply with the solvency requirements), in order for the DFSA to be able to take the necessary measures. Today, the DFSA can take such measures at a far earlier stage, even if the bank in question is not in current distress, and not only in connection with inspection visits by DFSA representatives, but as a result of the general supervision and examination of banks, including as a result of the DFSA review of the regular submissions made by the banks.
Special requirements for publication
Finally, it should be noted that according to the Financial Business Act, a Danish bank is obligated to make publicly accessible the findings contained within the DFSA’s supervisory assessment, including information usually restricted from public view in other Western financial sectors, such as orders imposed and risk potential. Moreover, the DFSA reserves the right to publish such information prior to a bank doing so if they believe these findings represent actionable dangers or weaknesses.
In addition, banks in Denmark are under a special duty to publish their individual solvency requirements.
And so, in this way too, the public are regularly informed of the state of health of Danish banks.
Lacking or adequate supervision?
To sum up, it may be argued that concerns over the perceived lack of supervision in the Danish financial sector amounts to little more than a transient panic, cultivated by a media and public apprehensive of the activities of the banking industry. In truth, supervisory measures currently in operation in the Danish financial sector have intensified considerably since the financial crash of 2008. Supervision of Danish banks is, by Eurozone standards, proactive and efficient, and banks operating in Denmark are subject to internal policies, and a legal environment, far more stringent and watchful than those in effect in many of their counterparts in Western Europe. In the least, a lack of official inspection visits is in no way tantamount to a systemic lack of supervision on the part of the DFSA.
UBX appoints new Chief Investment Officer
In line with its strategy to explore and invest in companies and platforms of the future, UBX—the Fintech and Corporate Venture Capital arm of Union Bank of the Philippines (UnionBank) — is announcing the appointment of Matthew Kolling as the company’s Chief Investment Officer (CIO).
As CIO, Kolling will be managing UBX’s Corporate Venture Capital (CVC) fund. He will also play a key role in raising capital for UBX while assisting the company in key corporate transactions, including the structuring of joint ventures and acquisitions.
Prior to his appointment at UBX, Kolling has been Head of Venture Investments at Aboitiz & Company since 2019, wherein he had been working with UBX on investment portfolio decisions. Before that, he held senior positions in Private Equity, Venture Capital, and Investment Banking at firms such as Providence Equity Partners and Morgan Stanley in New York.
Kolling has more than 20 years of experience in managing investments and deals in the Technology and Telecommunications industries and is active in Venture Capital and startup communities in the Philippines and the Southeast Asian region. He currently chairs the Manila Angel Investors Network, among others.
“We at UBX are excited to welcome Matt as our new CIO. We firmly believe that Matt will be instrumental in driving value creation opportunities, both within the CVC fund and our corporate ventures. We look forward to working with him as we fulfill UBX’s vision of a future where banking services are embedded into everyday experiences that matter,” said UBX president and CEO John Januszczak.
Meanwhile, UnionBank president and CEO Edwin Bautista said, “The addition of world-class talents in our pool reinforces our strategy to future-proof the organization and our business as we prepare for many new opportunities that come with the changing times.”
It’s all relative: Older generations feel helping out the family financially is more important since the Covid-19 outbreak
Before Covid, 23% of people prioritised helping younger generations out financially, that increased to a third as a result of the pandemic
A recent survey* conducted by Hodge has revealed that the Covid pandemic has led to more people wanting to help younger family members financially.
A third (31%)** of those questioned said that since the Covid outbreak giving a financial gift to children or grandchildren is more important to them, compared to 23% who said it was a priority before the pandemic.
The traditional “Bank of Mum and Dad” is still very much open for financial help, with parents being responsible for 72% of the gifts, but the study also revealed that financial gifts can come from all corners of the family – including children (14%) and siblings (14%).
The survey also found that a third of people have received a financial gift from family, with those aged between 25-34 as the most likely to receive
The most popular reason for gifting money to family is for special occasions such as a quarter of gifts were given for weddings and birthdays but 11% of people have received money to help with big purchases such as cars and houses. In addition, 19% of people have received help with day to day finances, with around 14% of those receiving a gift have done so to pay off debt.
Emma Graham, Business Development Director at Hodge, said of the research: “Our study showed that, as a nation, we all want to help our family out when it comes to money. And whilst we all think of the Bank of Mum and Dad or Gran and Grandad as a traditional source, we were surprised to see that 14% of brothers and sisters are also helping out.”
The findings come from a recent intergenerational study conducted by Hodge, who interviewed over 3000 people about their attitudes towards finances and their aspirations for the future. The full research findings can be found at https://hodgebank.co.uk/2020/05/19/money-its-all-relative/.
As part of the study, people were also asked about paying back the gift, with 40% of beneficiaries expecting to pay their parents back, but this dropped to 28% if the gift came from grandparents.
From the gift donor’s perspective, 26% expect the gift to be paid back, however just 15% of grandparents expected the money back.
Hodge has produced a set of guides on how families can navigate the tricky subject of giving financial gifts within a family, as well as the considerations and steps that be families should think about taking before a gift is given, such as is it a loan or a gift and thinking about contingencies if the family member’s circumstances change. The guides can be found here: https://hodgebank.co.uk/news/
Emma continued: “It’s clear that families feel strongly about offering financial support to each other if they are able and this has increased since the Covid pandemic. Before Covid, 23% of people prioritised helping their families out financially in the next five years. Since the Covid-19 outbreak that has increased to a third of people saying helping a family member financially had become more important.
“So, it is clear that the Covid-19 lockdown and subsequent predicted economic downturn, has led to more families looking to share wealth to help younger children or grandchildren during this difficult time. Many people may look to Later Life mortgages, where many products have reduced their rates and have flexible lending criteria, to help out a loved during these difficult times.”
New report identifies the factors which will determine SMEs’ chances of a successful COVID recovery
· Analysis of the performance of over 1,000 UK small and medium-sized businesses by Allica Bank provides roadmap for SMEs
· Regular training, an openness to innovation, and a clear vision all contribute heavily to an SMEs’ chances of success
· Allica Bank has launched a programme of free workshops to expand on the findings and support business owners
Business bank, Allica Bank has combined data and insight from over 1,000 UK SMEs with a multiple regression analysis to determine what factors most closely aligned with an SMEs’ chances of success and separated the highest-performing businesses from their peers. These ‘rules for success’ have been compiled from the research data to support British businesses as they look to chart a course to post-Covid recovery.
The full report identifies six behaviours for small and medium businesses to follow, to maximise their chances of a successful COVID recovery. The six top-line rules emphasised by the data were:
Rule 1: SMEs should regularly train staff
Of the top-performing businesses analysed, 47% provided training for employees at least on a quarterly basis, compared to just 32% of other businesses. Regular employee training was linked closely to success by the model.
Despite this, many small businesses have neglected training and nearly half (46%) of the small businesses analysed only provide training for employees about once a year or less often. This included 15% that never provide employer-funded training. This discrepancy could represent a significant opportunity for small businesses to unlock the potential of their employees and thrive in the post-Covid economy.
Rule 2: SMEs need to focus on innovation and technology
Looking again to the best performing businesses, 76% were found to either continually (39%) or often (37%) be considering new opportunities for technology in their business. This is compared to only 51% for businesses considered to be outside of the top ranks, out of which only 27% admitted to continually looking for new technology opportunities.
Rule 3: Small business must have a formal, long-term vision
Nearly two thirds (66%) of the most successful businesses in the survey had a formal, long-term vision, compared to just 50% of businesses outside the top 100. Looking to the businesses that scored the lowest on the SME Performance index, only 37% claimed to have a formal, long-term vision.
Rule 4: SMEs should broaden their customer reach and find new markets
Of the top-performing businesses, 65% of these have overseas customers compared to just 40% of the worst performing businesses. Among the best performing SMEs, over a third (34%) identified international expansion as one of the top three drivers for their success.
Rule 5: SMEs need to develop reinvestment plans
22% of the best performing SMEs reinvested some of their profits into the business in the past three years with an average 9% of profits being redeployed. Tellingly, this is nearly double what other businesses admit to reinvesting in their business (5%).
Rule 6: SMEs should engage with local business organisations and networks
Of the top 100 SMEs, 30% had obtained external credit to expand over the past three years (compared to 24% of other businesses). Meanwhile, only 16% of all other SMEs had engaged with local enterprise partnerships or growth hubs in the past three years (compared to 23% of the top 100 SMEs).
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“All small businesses are different, as are all small business owners, but one trait they share is an innovative resilience. Whilst the coming months and years will undoubtedly continue to present extreme challenges, there is no doubt that small and medium sized businesses across the UK will rise to meet them head on.
“To give them the best chance to succeed, though, they need to be equipped with the right tools. There is certainly no silver bullet or panacea for every small business, but as this study has found, there are a number of common factors found in the most successful businesses that allow small enterprises to thrive and that they can consider individually for their business.
“This research has identified common ‘rules for success’ that speak to every aspect of running a business, not just the financials. Once we saw these results, we wanted to use them to help small businesses begin to re-build and prosper, by outlining common factors and then examining how best they can be practically applied to businesses in all sectors of the economy.
“Small business owners and their employees have been hit hard by the crisis, but they have the drive and resourcefulness to breathe new life into the economy and bring energy to post-Covid Britain. Our commitment at Allica Bank is to give them the support they need to do so, every step of the way.”
The full report contains a wealth of additional data and insight into each of these topics. As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
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