Danske Bank's money laundering scandal led to the ousting of its chief executive and chairman as well as criminal investigations in the US, Denmark and Estonia © Bloomberg

Denmark’s government is to propose measures to avoid its financial regulator being too close to the banks it supervises after concerns of regulatory capture in its response to the giant €200bn money laundering scandal at Danske Bank. 

Rasmus Jarlov, Denmark’s business minister, told the Financial Times the centre-right government would discuss ways to strengthen the Financial Supervisory Authority at the beginning of the new year. 

Asked about regulatory capture — the idea that an authority is strongly influenced by the sector it is meant to supervise — and whether Danske was too big to fail for Denmark, Mr Jarlov said: “It’s a fair point and surely it’s something that we are also discussing: how we can ensure that we don’t have ties that are too close between the financial sector and the authorities.” 

Danske’s money laundering scandal has led to the ousting of its chief executive and chairman as well as criminal investigations in the US, Denmark and Estonia after the bank conceded €200bn of money from Russia and other ex-Soviet states flowed through its tiny Estonian branch in a nine-year period. 

Howard Wilkinson, the whistleblower and former Danske executive who brought the scandal to light, and others have criticised the Danish FSA’s performance during the scandal, arguing it appeared to try to protect the bank. Attention has also centred on the fact that the FSA’s chairman until May, Henrik Ramlau-Hansen, was Danske’s former finance director. 

The biggest recent rise in Danske’s share price occurred when Jesper Berg, the current head of the FSA, said that some estimates of the fines the bank was likely to receive were probably inflated. “When you are under heavy scrutiny, to do this smacks of regulatory capture,” said one person involved in the Danske investigation. 

“We are considering this challenge [of regulatory capture],” said Mr Jarlov. “We have not decided on specific measures. During the beginning of 2019, we will do a lot of work to strengthen the FSA in Denmark, based on the experience of this case and also based on the experience of other countries.” 

He added: “We have specifically asked for a neighbour check on this challenge: how to have the right balance between getting competent people from the banking sector into the authorities without having [conflicts of interest].” 

Mr Berg denied there was any regulatory capture at his authority. “I think people who know us just a little bit would know that the integrity in this institution is incredibly high, by any standard,” he told the Financial Times. 

“We have frankness in our reporting on the bank. You will see there’s a criticism you will rarely find in [our] report [from May] towards the bank, as well as towards our former chairman. We observed all rules in terms of keeping him out of the loop. It was unfortunate for him, it was unfortunate for us, it was unfortunate for the country that he was involved in these events.” 

Asked about what the government could propose, Mr Berg said: “I think it’s a legitimate concern. But there’s clearly a trade-off in terms of having people who have their hands in the dirt, knowing what goes on, versus getting people who are then later accused of having dirty fingers.” He added that the FSA had strict standards for taking people off cases where they have had prior involvement.

Get alerts on Money laundering when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article