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Benjamin Kjeldsen - Regulation and Supervision of Financial Services in Denmark and Britain

Regulation and Supervision of Financial Servicesin Denmark and Britain

- with a Terminological Review of Selected Conceptswithin Securities Legislation

MA Thesiscand.ling.merc.

MA in Translation and Interpretation

Benjamin Holst Kjeldsen, MLE 4

Thesis Supervisor: Lise Mourier

Copenhagen Business SchoolMarch 1999


Thesis Outline

Regulation and Supervision of Financial Services in Denmark and Britain- with a Terminological Review of Selected Concepts within SecuritiesLegislation

Benjamin Holst Kjeldsen, MLE 4

The thesis provides translators, students and communicators within the financial services industries

with an overview of the regulatory regimes in Denmark and Britain in the light of the recent

reforms of the regulatory scopes and organisations in both countries. The focus is on the regulation

of the three main areas of financial services, i.e. investment, banking and insurance, performed by

”Finanstilsynet” (the Danish Financial Supervisory Authority), ”Fondsrådet” (the Danish Securities

Council), the UK Financial Services Authority and their respective frontline regulators, for instance

investment exchanges. The first part of the thesis offers a contrastive analysis of the powers,

responsibilities, structures and legal bases of the regulators. Drawing on the conclusions of the

analyses, the second part of the thesis discusses 28 terms and concepts within securities law, one of

the main financial services areas, and more specifically, contraventions of the Danish Securities

Trading Act and the UK draft Code of Market Conduct.


List of Abbreviations

Only abbreviations used in the thesis are listed.The country in which the institution or concept applies is indicated in brackets.

AIM The Alternative Investment Market (UK)AMP Autoriseret Markedsplads (Authorised Market Place) (DK)BCCI Bank of Credit and Commerce InternationalCSE Københavns Fondsbørs (Copenhagen Stock Exchange) (DK)CSI The Council for the Securities Industry (UK)Dansk AMP Dansk Autoriseret Markedsplads (Danish Authorised Market Place) (DK)DDB Den Danske Bank (DK)DFSA Finanstilsynet (The Danish Financial Supervisory Authority) (DK)DRBs Directly Regulated Businesses (UK)FESCO The Forum of European Securities CommissionsFSA The Financial Services Authority (UK)FSA86 The Financial Services Act 1986 (UK)FSMB The Financial Services and Markets Bill (UK)FTB Frankfurt Terminbörse (GER)ICS Investors Compensation SchemeIMRO The Investment Management Regulatory Organisation (UK)IOSCO International Organisation of Securities Commissions (Supranational)LCH London Clearing House (UK)LIFFE The London International Financial Futures and Options Exchange (UK)LSE London Stock Exchange (UK)OEICS Open-ended Investment Schemes (UK)OMLX The London Securities and Derivatives Exchange (UK)PIA The Personal Investment Authority (UK)PUNCS Unauthorised Open-ended Investment Schemes (UK)RBs Recognised Bodies (UK)RIE Recognised Investment Exchange (UK)RNS Regulatory News Service (UK)SEC The Securities and Exchange Commission (US)SETS Stock Exchange Electronic Trading Service (UK)SFA The Securities and Futures Authority (UK)SRO Self Regulating Organisation (UK)Vphl Værdipapirhandelsloven (the Danish Securities Trading Act) (DK)


List of Contents

Executive SummaryList of Abbreviations

Introduction ........................................................................................................................... 11.1. Thesis Statement .............................................................................................. 21.2. Delimitation ..................................................................................................... 31.3. Thesis Structure and Executive Summary ................................................... 41.4. Target Group Considerations ........................................................................ 51.5. Literature ......................................................................................................... 6

2. Development of Regulation in Denmark and Britain ...................................... 82.1. The Danish Financial Services Regulatory Regime ..................................... 8

2.1.1. Constructive Consolidation of Sundry Supervisors ............................ 82.1.2. The Danish Stock Exchange Reform II .............................................. 9

2.2. The British Financial Services Regulatory Regime ..................................... 112.2.1. Altering Acronyms – from FSA86 to FSMB ...................................... 11

2.3. Reformed Regulatory Regimes ...................................................................... 132.4. The Structure of the Financial Services Regulators .................................... 14

2.4.1. The Danish Financial Supervisory Authority ..................................... 142.4.1.1. Regulatory Structure after the Danish Stock Exchange

Reform II ........................................................................ 142.4.2. The British Financial Services Authority ........................................... 16

2.4.2.1. Regulatory Structure under the Financial Services Act 1986and Beyond ..................................................................... 16

2.4.2.2. The Securities and Investments Board ........................... 182.4.2.3. The Financial Services Authority ................................... 18

2.5. Shifting Strategies – Reorganising Regulators in Denmark and the UK ... 20

3. Regulatory Powers and Responsibilities .............................................................. 213.1. Scope and Distribution of Regulatory Powers in Denmark ........................ 21

3.1.1. Regulatory Responsibilities Redefined – Enter the Securities Council 213.1.2. Appeals ............................................................................................... 243.1.3. Market Measures – The Powers of CSE and AMP ............................ 243.1.4. Framework Function – Reviewing Legislation ................................... 253.1.5. Security in Trading – The Securities Trading Act .............................. 27

3.2. Scope and Distribution of Regulatory Powers in Britain ............................ 283.2.1. Regulatory Responsibilities Redistributed – Exit the SIB .................. 283.2.2. Recognised Bodies .............................................................................. 28

3.2.2.1. Self-Regulating Organisations ........................................ 293.2.2.2. Recognised Professional Bodies .................................... 323.2.2.3. Recognised Investment Exchanges ................................ 323.2.2.4. Recognised Clearing Houses .......................................... 36

3.2.3. Tower of Power or Fractured Structure – The British Recognised Bodies ........................................................... 37

3.3. Danish Duplication and British Blur – Supervisory Status ........................ 37


4. Supervision and regulation of Businesses and Markets ............................. 394.1. Regulated Business, Markets and Companies .............................................. 394.2. Credit Institution, Commercial and Investment Bank Supervision ........... 40

4.2.1. Credit Institution, Commercial and Investment Bank Supervision inDenmark .............................................................................................. 40

4.2.2. Credit Institution, Commercial and Investment Bank Supervision inBritain ................................................................................................. 41

4.2.2.1. The Bank of England and the FSA ................................. 414.2.2.2. Supervision of the British Banking Sector ..................... 42

4.2.3. International Trends in Banking Supervision ..................................... 434.2.4. Banking Supervision in Denmark, Britain and the World .................. 44

4.3. Financial Groups ............................................................................................. 454.3.1. Financial Conglomerates in Denmark ................................................ 454.3.2. Complex Groups in Britain ................................................................. 464.3.3. The US Approach to Financial Giants ................................................ 474.3.4. Supervision of Financial Groups in Denmark and Britain .................. 47

4.4. Mortgage Credit .............................................................................................. 484.4.1. Mortgage Bank Supervision in Denmark ........................................... 484.4.2. Mortgage Credit Supervision in Britain .............................................. 494.4.3. Mortgage Credit in Denmark and Britain ........................................... 50

4.5. Insurance Supervision .................................................................................... 504.5.1. Insurance Supervision in Denmark ..................................................... 504.5.2. Insurance Supervision in Britain ......................................................... 514.5.3. Insurance Supervision in Denmark and Britain .................................. 51

4.6. Stock Exchange Supervision ......................................................................... 524.6.1. Stock Exchange Supervision in Denmark ........................................... 524.6.2. Recognised Investment Exchanges in Britain ..................................... 52

4.7. Investment Service Supervision .................................................................... 524.7.1. Investment Service Supervision in Denmark ...................................... 524.7.2. Investment Service Supervision in Britain ......................................... 534.7.3. Investment Service Supervision in Denmark and Britain ................... 54

4.8. Innovative Investment on the Internet ......................................................... 544.9. Regulated Entities in Denmark and Britain ................................................ 55

5. Financial Scandals – Reality of Regulation ......................................................... 565.1. Financial Scandals in Denmark – Cases and Cures ..................................... 57

5.1.1. Insured Insolvency – The Hafnia Scandal .......................................... 575.1.2. Funding the Faroes – The Faroe Islands Banking Scandal ................. 585.1.3. Insolvency Iterated – Pragmatics of Regulation in Denmark ............. 59

5.2. Financial Scandals in Britain – Recovery and Remedies ............................ 595.2.1. Lessons from Leeson – The Fall of Barings ....................................... 595.2.2. Adverse Advice – The Pensions Mis-Selling Scandal ........................ 605.2.3. Financial Fraud – Pragmatics of Regulation in Britain ...................... 60

5.3. Reality of Regulation in Denmark and Britain ............................................ 61


6. Objectives of Financial Regulation ........................................................................ 636.1. Systemic Considerations – Wholesale Financial Services Regulation ........ 636.2. Consumer Protection – Retail Financial Services Regulation .................... 656.3. Consumer Compensation ............................................................................... 67

6.3.1. UK Investor Compensation ................................................................ 676.3.2. The Danish Investor Guarantee Fund ................................................. 69

6.4. Danish and British Financial Regulation Objectives ................................... 70

7. Accounting for Authority .......................................................................................... 717.1. FSA and FSMB ................................................................................................ 717.2. Linguistic Examination of the Financial Services and Markets Bill .......... 727.3. The Supervisor Supervised ............................................................................ 747.4. The Accountability of the FSA ....................................................................... 76

8. Conclusion ....................................................................................................................... 77

9. Terminology .................................................................................................................... 799.1. Choice of Terminological Study ..................................................................... 799.2. Organisation of the Terminology ................................................................... 809.3. Terminology Study .......................................................................................... 82

10. Bibliography ................................................................................................................... 117

Appendixes

A. Relevant Internet AddressesB. LSE and AIM NoticesC. “Introduction to financial services regulation”, SIB internet publicationD. “Links with other UK regulators and supervisors”, SIB internet publicationE. “The SIB Principles”, SIB internet publication

Summary in Danish

Benjamin Kjeldsen - Regulation and Supervision of Financial Services in Denmark and Britain 1

1. Introduction

Financial services legislation, and consequently also that governing financial services regulators,

saw the instigation of major reviews in Denmark in 1995 and in Britain in 1997. Already the

liberalisation of the financial services sector which was commenced in the 1980’s in both countries

dimmed the traditional definitions of the different financial services providers and opened up

markets to global interaction. EU and other international and supranational bodies set the standards

in many areas of financial services legislation, but national differences still persist in terms of

traditional legislation practice and services and products offered.

The advent of new, complex financial instruments, the blurring of traditional demarcation lines

between the types of financial services providers and the establishment of international financial

giants are all issues that need to be addressed by financial services regulators. A case in point is the

spectacular collapse of Barings Bank, the prestigious UK merchant bank which stunned not only the

financial world. Unauthorised proprietary dealing in derivatives by one person was blamed for the

fall of Barings. Regulators soon realised, however, that the real reason for the collapse was to be

found in the flawed internal management routines of the bank. Overnight, corporate governance

climbed significantly up the list of regulatory priorities. This quick pace of changes in the regulated

industries means that financial regulation is turning into a match race with the corporate world.

Regulators must confront the regulated industries on their home ground. It is necessary for

regulators to jump the corporate bandwagon of consolidation and innovation in order not to be

outmanoeuvred. Financial fraud is difficult to prevent, but even the honest operation of financial

services firms constitutes a great regulatory challenge. This thesis aims at examining the financial

regulators, their powers and responsibilities as well as the challenges they face in the modern world

of financial services.


1.1. Thesis Statement

It is endeavoured to provide a contrastive analysis of the financial services regulatory regimes in

Denmark and Britain through an examination of

- traditional approaches to regulation- recent developments in regulation

(i.e. the Danish Stock Exchange Reform II and the establishment of the UK single regulator)- the legislative environment

(e.g. framework legislation vs. detailed rules; position in the national administration)- powers and responsibilities

(e.g. rule-making, supervisory scopes, distribution of responsibilities between regulatory levels)- approaches to actual financial crises in the regulated industries- selected terms and concepts within the area of securities law

The main legislation governing financial regulation, the draft British Financial Services and

Markets Bill and the Danish Securities Trading Act, will be compared in terms of the powers and

responsibilities they confer upon the regulators. An objective, linguistic examination of the draft

UK legislation will provide the basis for a discussion of the accountability of financial regulators.

The two main financial services regulators and supervisors constitute the focal point of the

comparison. It is expected that the regulators perform roughly the same functions in both countries

but that their approaches and statutory powers differ. Pinning out the points of difference, the thesis

aims at enabling translators – or any other party to communication within the financial services

industry – to quickly become cognisant of any non-comparable functions, working methods or

approaches, which consequently does not translate directly. The end objective of the thesis is to

provide a quick and efficient overview of the systems of financial regulation in Denmark and

Britain in the light of the recent reform of the British financial regulator as well as the continuous

adjustment in the legislative environment governing financial services in both countries.

Drawing on the conclusions of the analyses of the powers, responsibilities, structures and legal

bases of the regulators, a terminological study will discuss terms and concepts within securities law,

and more specifically contraventions of the Danish Securities Trading Act and the UK draft Code of

Market Conduct. Central terms and concepts will be examined, reviewing existing translation

practice and suggesting the best translation.

Editing of the thesis ended on 10 March 1999.


1.2. Delimitation

The primary inspiration to write this thesis about financial regulation was the announcement of the

UK financial services reform in May 1997. Financial services include all the different financial

industries. For the purposes of this paper, only the services relating to investment, insurance and

banking (deposit-taking) will be covered. This delimitation excludes vast areas such as M&A

activity and competition regulation. The point of departure for this study is the body of financial

legislation in Denmark and Britain. For the UK, the proposed Financial Services and Markets Bill

(FSMB) along with consultative documents published by the regulators and HM Treasury as well

as the predecessor to the Bill, the Financial Services Act 1986 (FSA86), will form the main

background for the analyses presented in the thesis. In Denmark, “Værdipapirhandelsloven” (the

Danish Securities Trading Act) constitutes the main financial regulation legislation. Together with

reports published by the Danish Financial Supervisory Authority (DFSA) and securities and

banking law textbooks, the Securities Trading Act provides the backdrop against which financial

services regulation in Denmark is reviewed. The UK FSA will receive special attention in the thesis

due to the ongoing reform of the regulatory regime in Britain. Moreover, a linguistic study

examines the enabling powers of the FSMB in order to establish the need for accountability of the

FSA. Though the substudy concerns British legislation only, it is expected that the findings in

respect of accountability apply to both countries.

The thesis contains a terminology study which is based on the discussion in the preceding sections.

Recognising the very broad scope of the thesis in general, the terminology study focuses on a

selected area only, viz. securities legislation and more specifically contraventions of securities

market regulations in the two countries. Regulators supervise the compliance of market participants

with such rules. See section 9 for an introduction to the terminology study and an account of the

choice of subject field for terminological treatment.

It was originally planned to publish the thesis on a CD-Rom containing all relevant source texts in

electronic form linked to the thesis and the terminology. Queries to the FSA showed that licences to

publish consulation documents etc. in an electronic form are subject to complicated procedures.

Hence, the only electronic publishing of the thesis is in the form of a summary and examples of

terminological records on the internet: http://www.geocities.com/Athens/9841/finreg.htm


1.3. Thesis Structure and Executive Summary

Section 2 of the thesis deals with the development of regulation in Denmark and Britain,

introducing the background for the recent financial legislation reforms and the structural differences

between the FSA and the DFSA. Britain is centralising regulation in a form not unlike the Danish

structure. However, Denmark introduced a new level of regulation, the Danish Securities Council,

in 1996.

Section 3 discusses the powers available to the individual levels of regulators, in particular as

concerns the relationship between the main regulator, investment exchanges and other frontline

regulators. It is concluded that this relationship may lead to confusion and eventually regulatory

arbitrage in Denmark, while the UK is redefining and improving the organisation of the regulatory

levels.

In section 4, the regulatory scopes in Denmark and the UK are compared in terms of the regulated

industries and the supervisory tools that apply to each type of business. Apart from national

characteristics such as mortgage banks in Denmark and Lloyd’s insurance market in London, the

regulatory approaches of the countries do not differ significantly. Britain may, however, be said to

be the more advanced of the two in respect of supervision of complex groups and internet

investment.

Having delved into the theoretical aspects of regulation in the preceding sections, the thesis looks at

the reality of regulation in section 5 by means of the regulators’ involvement in recent financial

scandals. The FSA is arguably employing the personal pensions mis-selling affair to raise

awareness of the existence and tasks of the new regulator, whereas the DFSA has been criticised for

its handling of the Hafnia insurance and the Faroe bank scandals.

Core objectives of financial regulation are examined in section 6 through a discussion of the

possibly conflicting interests in wholesale and retail financial services regulation. The consumer

compensation schemes of the two countries are subsequently compared in order to examine the

general legislative approach to regulation. It is established that the UK FSMB will impose on the

FSA a statutory objective of fronting consumer protection, which is not the case in Denmark.


Section 7 examines the accountability of the new FSA separately, though the findings apply to both

countries. A linguistic substudy reveals the extent of enabling powers in the proposed FSMB, and it

is established that supervision of the supervisor is called for under the legislative framework in

Britain as well as that in Denmark.

The conclusions of the thesis are commented in section 8, before section 9 discusses terminological

issues within securities legislation. There are significant similarities between the contraventions of

securities law in the two countries and consequently between the regulatory responsibilities, though

conceptual nuances render inappropriate translations of most concepts by the near-equivalent

opposite in the other country. Rather contrary to the findings of the rest of the thesis, but in support

of the concern voiced that the UK regulator enjoys considerable rule-making powers, conceptual

deficiencies in the Danish language indicate that the rules issued by the FSA are very detailed.

After the bibliography (see section 1.5. below), Appendix A lists relevant URLs (internet addresses)

and Appendix B gives examples of LSE announcements. Three appendixes are subsequently

devoted to internet texts which have been removed from the web during the writing of the thesis.

1.4. Target Group Considerations

The overall aim of the thesis is to compare the systems of financial supervision and regulation in

Denmark and Britain with a view to providing a quick and efficient tool for language students and

translators interested in learning about the form, function and terminology of financial regulation.

Another aim is to provide regulators and others occupied in the financial services sectors of the two

countries with an overview of the regulatory systems in order to heighten their knowledge of the

other country’s regulatory regime. The latter objective is relevant in the light of the recent recasts of

the regulatory frameworks of both countries. Special features of financial services in Britain and

Denmark (e.g. British building societies and Danish mortgage banks), which may be obvious to the

Brit and Dane, respectively, are consequently explained so as to accommodate the needs of the

target groups of both countries. The focus in the thesis is on the translation aspects of financial

regulation, however. A contrastive analysis of the regulatory and supervisory regimes of Denmark

and Britain is provided in order to facilitate the correct translation of concepts and terms central to

financial services regulation. Most Danes will understand English, whereas the opposite does not

hold true for Brits, which is why the thesis is written in English.


1.5. Literature

UK financial press coverage on NewRo or Super-SIB, as the FSA was nicknamed before its

baptism in October 1997, from 1997 to 1999 provided a solid reference base for the thesis. More

than 280 articles from the Financial Times were collected, of which 49 serves as direct source

references as listed in the Bibliography. A welter of consultative papers and reports by the UK

regulator were also examined as they were published on the internet. Reference material on the

Danish aspect of the thesis mainly consists of law textbooks, the regulators’ annual reports,

financial press articles and the white paper behind the 1995 regulatory reform in Denmark. Two

translations of the Danish Securities Trading Act are commented in the terminology study.

Generally, the internet has proved a valuable text reservoir. Internet sites relevant to the thesis are

listed in Appendix A. While the possible transitory nature of internet publications is recognised, it

has not been deemed necessary to include copies of all texts found on the internet, as the sites listed

in the Bibliography were last accessed on 19 March 1999. However, three of the texts used for the

thesis were removed from the internet when the SIB turned into the FSA. These texts are included

as appendixes C, D and E.

The continuing monitoring of newspapers and publications for almost two years has provided an

understanding of not only the developments, but also their reasons, particularly as concerns the

British side of the thesis. The choice of source material for the thesis has been subject to a

proximity criterion. The first level of sources includes Acts of Parliament, proposed legislation and

travaux prepatoires for such legislation in both countries, which have been examined to establish

the intentions of the legislators. Reports, speeches, announcements and consultative papers

published by the regulators constitute the second level of sources and are indicative of the

regulators’ interpretations of financial services legislation. The third, and most remote, level of

literature consists of newspaper articles and other sources commenting the work of the regulators.

In November 1998, additional material for the thesis was obtained during brief visits to LSE,

LIFFE, Lloyd’s, FSA and the Bank of England. Danmark’s Nationalbank and CSE have patiently

assisted in the research for the terminology section.

The Bibliography falls in four parts: textbooks, laws and reports; oral sources; newspaper articles;

and internet publications. Source reference to reports and textbooks is made by a code consisting of


the three first letters of the author’s name and the first letter of the title followed by a two-digit

reference to the publishing year and the page number, for instance:

Code Full source details in the Bibliography

WerB97:p.80 Werlauff, Erik Børsret – Værdipapir og handel, jura og økonomi

Copenhagen: Børsens Forlag A/S, 1997

Where the individual author does not appear from a publication, reference is made to the

appropriate organisation. Newspaper sources are referred to by a code including the name of the

paper, year and an identification letter, e.g. FT97f. Accepted abbreviations (e.g. FSA) have been

maintained in the bibliography code.

Throughout the thesis, most main institutions in the financial sectors and their supervisors are

referred to by means of abbreviations. The first time an institution is mentioned, its name is written

in full, followed by the applicable abbreviation in bold letters (e.g. the Financial Supervisory

Authority (FSA)). Abbreviations used are listed at the very front of the thesis.


2. Development of Regulation in Denmark and Britain

The financial services sectors in Denmark and the UK have undergone major changes within the

last decade. The regulatory regimes of the two countries have not been late to follow up on this

development. In order to facilitate an understanding of the present supervisory systems and

regulatory approaches, this section offers a brief outline of the development of the financial services

regulatory regimes.

2.1. The Danish Financial Services Regulatory Regime

2.1.1. Constructive Consolidation of Sundry Supervisors

Danish financial institutions were first supervised in 1881 by “Sparekassetilsynet” (The Savings

Banks Supervision Agency) which functioned as a depositor protection supervisor. A series of bank

failures and the famous Alberti scandal1 triggered an extension of the powers of the supervisor in

1907, leading to new banking legislation in 1920 (OthD94:p.272). Supervision of banks and savings

banks2 was separated until 1963, and in 1974 the regulation of the two types of financial institutions

were embodied in a single act, “Bank- og Sparekasseloven” (The Bank and Savings Bank Act)

(FinE96:13f). Mortgage bank supervision was the responsibility of Ministry of Housing officials

until the early 1970s when a mortgage credit council was set up. A collected public supervisory

body was not established until 1981. In 1990, the important mortgage credit area was transferred to

the main financial regulator, “Finanstilsynet” (the Danish Financial Supervisory Authority)

(DFSA), which supervises the compliance of financial institutions and market participants with the

body of financial services legislation (BjeT97:p.29f).

The DFSA was established on 1 January 1988 by an amalgamation of ”Tilsynet med Banker og

Sparekasser” (the Danish Supervisory Authority for Banks and Savings Banks) and

”Forsikringstilsynet” (the Danish Insurance Supervisory Authority) (FINc).

The first regulation of Danish financial markets dates from the 17th century, but supervision of

market participants’ compliance with this regulation was not commenced until 1808 by a royal

1 Danish Minister of Justice for seven years, P.A. Alberti was jailed for massive embezzlement of state funds in 1908.2 Today, Danish savings banks are very similar to other banks in terms of organisation and corporate structure.Traditionally, savings banks were often rooted in co-operative movements and to the local society (HøpL97:p.44f).


order to the effect that a stock exchange commissioner be instituted. The supervisory function was

soon closed down and was not to be reintroduced until 100 years later in another form. The law was

not updated on the regulatory side until 1930 with the introduction of stock exchange rules. The

legislators first addressed issues such as disclosure and listing requirements in 1967, and 1972 saw

a review of stock exchange law. Now a part of the European Community, Denmark introduced a

code of ethics governing stock exchange activities in 1978 (SchD96:p.23ff). Interestingly, SchD96

(p.30f) mentions that eight years later, in 1986, the primarily suasive stock exchange code of ethics3

was replaced by performative rules. The tentative, suggestive Danish “bør” (“should”) gave way to

the performative “skal” (“shall/must”). The shift in regulatory approach from one of suasion to

more direct requirements is a fundamental element in regulatory attitude.

In keeping with international deregulatory winds of change, Danish financial services were

liberalised in the 1980’s. The most important change to Danish stock exchange law was effected in

1986 with what was to become known as the “Stock Exchange Reform” (“Børsreformen”),4

introducing, inter alia, electronic trading, wider access to trading on the stock exchange, intensified

supervision and registration of shares, all of which also necessitated an efficient reporting system

(BørB95a:p.18 and SchD96:p.26). The DFSA became responsible for supervising the Copenhagen

Stock Exchange (CSE) and the trade on the exchange. In scope, the Stock Exchange Reform is

comparable to London’s “Big Bang,” which also took place in 1986. However, in 1995, Denmark

amended the stock exchange rules and initiated a review of the legislation governing the DFSA.

Being the most recent major review of financial services regulation, this second reform of Danish

securities law forms the point of departure for the discussion of the regulatory structure in Denmark.

2.1.2. The Danish Stock Exchange Reform II

In 1993, the Danish Minister for Industry (“Industriministeren”)5 established “Børsudvalget” (the

Stock Exchange Committee) with the set task of producing draft bills and changes to existing

legislation to the effect of introducing a stock exchange reform. The work of the Committee

materialised in 1995 in the form of a four-volume white paper entitled “Børsreform II” (Stock

Exchange Reform II).

3 There were no legal sanctions against breaches of the stock exchange code of ethics (AndI96:p.20).4 After 1995, the literature on the subject tends to refer to this first reform as “Stock Exchange Reform I” (“BørsreformI”) (e.g. AndI96:p.20)5 Now the Minister for Business and Industry (following a restructuring of Danish ministries). In 1996, the Minister forEconomic Affairs became responsible for the entire Danish financial sector, including financial supervision.


The Minister for Industry mandated the Committee to review Danish stock exchange legislation

against the backdrop of the following issues (BørB95a:p.9f):

! The scheduled implementation of the EC Investment Service and Capital Adequacy Directives.6

! The increasing internationalisation of stock exchange activities.! The advent of new instruments traded on the exchange.! The need to prepare stock exchange legislation for the future (e.g. EMU), also in order to direct the development towards greater efficiency.! An ambition to ensure greater influence for and responsibility of those operating on the exchange or influenced thereby vis-à-vis the stock exchange.

The free movement of goods and capital within the EU single market subjected CSE to an

unprecedented degree of international competition. In 1994, approximately 40 per cent of the total

government bond trading was effected between two non-Danish parties and an extra 10 per cent of

total trading involved one foreign party (BørB95a:p.21). This foreign trading in Danish bonds thus

constituted an unfulfilled government bond trading volume potential percentage of 100 for CSE,7

which is known for the significance of its bond trading and its comparatively small share trading

volumes.8 Another rather unique feature of CSE is that it covers trading in shares, bonds and

derivatives in one and the same institution, whereas most countries have set up specialised

exchanges for the various instruments (BørB95a:p.45).

Traditionally, the Danish stock exchange had been cutting edge compared to its foreign

counterparts, not least due to its advanced technological stage, e.g. in terms of clearing and

settlement and electronic registration of securities9 (BørB95a:p.119). In 1993, these advantages had

largely been balanced out by the rapid technological development of foreign exchanges. In

particular the London Stock Exchange (LSE) posed a potential threat to the Danish securities

market as the volume of deals in Danish securities effected in London was significant enough to

influence the price mechanism in Denmark. Market transparency is at risk when much of the trading

is conducted outside the Danish exchange and thus not subject to reporting to CSE. Reporting is the

cornerstone of transparency when talking price fixing (BørB95a:p.97-102). Hence, London

6 Throughout the thesis, Directives issued by the European Community before the commencement of the EuropeanUnion will be referred to as EC Directives.7 Ceteris paribus – supposing trade involving non-Danish parties is effected outside CSE.8 The significance of the bond market is partly ascribable to mortgage bonds which are essential to the Danish realestate market (see the discussion of Danish mortgage bank supervision below, section 4.4.1.).9 CSE was also one of the first markets in the world to to provide remote electronic trading (CseF98:p.26).


constituted the most important international challenge to the Danish market and was a direct

inspiration for the implementation of a reform of the Danish securities market (see e.g.

BørB95a:p.69). Before delving into the modernisation of the financial services regulation

framework in Denmark, it is therefore natural to look at the development of the British financial

services regulatory regime, which has experienced a similar updating in the last couple of years.

2.2. The British Financial Services Regulatory Regime

2.2.1. Altering Acronyms - from FSA86 to FSMB

Financial services deregulation in Britain commenced with the 1986 Big Bang, which introduced

radical changes to stock exchange business procedures. Already in 1985, the financial services

industry underwent a reform with the establishment of a multi-institution regulatory regime.

Whereas the historical 1986 shift in political approach to financial services provided the basis for

the present regulatory regime in Britain, the recent reorganisation of financial services legislation

will constitute the focal point of the discussion of UK financial regulation provided in this thesis.

Following a general introduction to the motivation for implementing changes to the regulatory

system in function for more than a decade in the UK, it is endeavoured to offer an overview of the

variety of regulatory bodies amalgamating into the single UK financial regulator, the Financial

Services Authority (FSA). The transition of the regulatory system is not expected to be concluded

before 2000, which means that the 1986 regime is still partly in function in Britain. The details of

the changes and of the previous system are consequently best dealt with in a separate section on the

powers, responsibilities and structure of the FSA.

Before 1986, securities trading was regulated by the Prevention of Fraud (Investment) Act 1958.

The Department of Trade was responsible for authorising dealers in securities, though investment

managers and advisers were not covered by the Act. A large portion of the investment sector was

hence unregulated (BlaR97:p.47). Supervision of the securities market was divided between two

bodies; the Joint Review Body, which met twice a year, and the Council for the Securities Industry

(CSI), which answered to the Bank of England. CSI formulated a Code of Conduct for Dealers in

Securities in 1980. The Bank exercised considerable influence on the regulatory structure through

informal channels (ibid:p.48). It played an important role in the creation of industry organisations

which would later form part of the decentralised self-regulating regime in the UK. As concerns the


regulation of insurance business, the Department of Trade enjoyed some supervisory powers over

the industry, but for instance the life assurance area was subject to changing systems of self-

regulation of varying quality (ibid:p.49).

In the early 1980s, Professor Jim Gower reviewed the structure of regulation in Britain resulting in

the drafting of the Financial Services Act 1986 (FSA86). The Act became a complex body, as firms

which had not previously been regulated squeezed in last minute amendments (BlaR97:p.61).

A little more than a decade later when the British Labour Party won its famous Mayday 1997

general election victory, it was on the basis of an election manifesto packed with promises of

reform.10 Within a few weeks of taking office, on 20 May 1997, the new Chancellor of the

Exchequer, Gordon Brown, announced that responsibility for banking supervision would be

transferred to the Securities and Investments Board (SIB).11 Two weeks earlier, the Chancellor had

declared that an independent Monetary Policy Committee under the Bank of England would be set

up to remove from the government the monetary policy instrument of fixing interest rate levels

(FT97a). The Bank of England Bill, introduced into parliament in October 1997, constituted the

most radical reform of the Bank’s responsibilities and duties since the 1987 Banking Act

(ButC98:p.3).

Further to the reform drive on the part of the new government, the financial services regulators were

becoming increasingly displeased with the intricacies of the regulatory system at the time (LarR97).

As appears from the below discussion of the merits of the multi-layered and opaque regulatory

regime introduced under the FSA86, the individual investor had difficulties in finding the right

regulator in case of problems. Arguably, the Danish financial services regulatory regime may also

be defined as multi-layered after the introduction of the Danish Securities Council and the blurring

of the responsibilities between the two main regulators and the securities markets as discussed

below in section 3.1.1.

10 For a discussion of Labour’s 1997 election manifesto and the preceding ideological shift and modernisation drive inthe Party under Tony Blair, see KjeN97.11 In effect, banking supervision was transferred to the FSA when the Bank of England Act 1998 came into force on 1June 1998. See Chapter 11, Part III (Sections 21-30) of the Bank of England Act 1998.


The UK Treasury and the FSA have published quite an impressive number of consultation papers

with a view to enhancing the quality of the new framework legislation and the powers delegated to

the FSA. The new Financial Services and Markets Bill (FSMB) was not introduced into Parliament

at the time of the conclusion of this thesis.

Having introduced the general background to the implementation of a new financial services

regulation regime in Britain, this section has established the basis for a comparative discussion of

the reform trends in Danish and British financial regulation. The following section concludes the

analysis of traditional regulatory approaches in the two countries before leading into an examination

of the structures and powers of the present regulators.

2.3. Reformed Regulatory Regimes

Denmark chose to undertake a reform of the stock exchange and the related business in connection

with the implementation of the EC Capital Adequacy and Investment Services Directives. In

Britain, this was done through amendments to existing legislation, leaving a somewhat complex

body of legislation. As would eventually become the case in Britain, completely new legislation

was drafted in Denmark. In both countries, this legislation allows for thorough modernisation and

flexibility in the change of approach, if need be. The British proposed legislation, the FSMB,

published on 30 July 1998, accumulates in one regulator the functions of several bodies, which

must be said to constitute a quite radical change. However, the Danish Stock Exchange Reform II is

the more radical of the two regulatory reforms, as the choice of a framework approach to financial

services regulation paved the way for a much more flexible - and consequently secure - supervision

and regulation of the financial sector.12 In Britain, the FSA86 already catered for the need for

regulatory flexibility, and the FSMB follows suit by emphatically placing flexibility in the form of

“enabling powers” over “detailed provisions” (HMT98:p.13).

The 1995 Danish Stock Exchange Reform was based on an initiative set in motion in 1993. The UK

legislators did not instigate a review of financial services legislation until 1997, though the financial

industry voiced concerns over the viability of the divided regulatory system already a few years

after the enactment of the FSA86. Interestingly, a 1990 comment in a study of the FSA86 says:

12 The previous securities legislation in Denmark was technically a framework, but the current Securities Trading Act ismore defined as a frame within which to formulate specific rules, (AndI96:p.35) not least because it encompasses areasprevious covered by several acts.


“There are many in the City who would welcome a move to a system where the majorsecurities firms […] would be regulated by a single regulator […] under a simplifiedsystem of non-legalistic rules applied in a firm but flexible fashion, so as to minimisethe costs and competitive disadvantage of the regulatory system” (SheF90:p.xv)

Anticipating the present trend, the study further argues in favour of reducing “the potential for

‘regulatory arbitrage’” and stripping the Bank of England of banking supervision (ibid.).

Britain has now done away with the blurred distinction between the responsibilities of the various

regulators. As mentioned, the FSMB is a framework enabling the FSA to introduce rules and define

the details of the regulation. Technically, this kind of legislation is referred to as delegated or

subordinate legislation (BarL96:p.29ff).13 Delegated legislation holds the potential to provide

flexibility, which facilitates detailed and precise rule-making and quick adaptation to future needs.

Powers delegated to a particular body need to be properly controlled, as the immediate

parliamentary control is not available. In section 7.2. below, a brief linguistic substudy is dedicated

to examining the balance between delegated and direct powers in the British financial services

legislation.

2.4. The Structure of the Financial Services RegulatorsThe present financial regulatory organisations in Denmark and Britain are the results of

consolidation of separate specialist agencies as discussed above. This section dissects the structure

of the regulatory regimes in order to paint an overall picture of the responsibilities of their

component parts. The implications of the Danish Stock Exchange Reform II and the ongoing British

regulatory reform are examined through an outline of the structural changes to the systems. A

contrastive breakdown of the powers and responsibilities of the regulators, to follow in the next

main section of this thesis, is facilitated by this analysis of the designs of the regulatory regimes.

2.4.1. The Danish Financial Supervisory Authority

2.4.1.1. Regulatory Structure after the Danish Stock Exchange Reform II

In 1995, the Danish Stock Exchange Committee reached the conclusion that a stock exchange

reform would be necessary to secure the continued efficiency of the Danish securities market in

13 The predecessor to the FSMB, the Financial Services Act 1986, also delegates functions to a “designated agency”(first the SIB and then further to the Recognised Bodies) by means of a “delegation order” (FSA86:S.114(2) and (3)).


relation to its function as a financial infrastructure junction (BørB95a:p.24). A significant part of

market efficiency is connected with efficiency in the supervision of the markets. In line with the

trend witnessed in Britain, the Committee stressed the need for offering adequate protection to

investors in the markets. Deregulation had now reached Denmark:

“Den nærmere regulering af værdipapirmarkedet og dets institutioner skal fremoverfinde sted i tæt samspil med markedet.”14

Importantly, this statement by the Committee paves the way for a supervisory regime not unlike the

one in Britain. The UK system of financial supervision under the FSA86 relies on the flexibility and

proximity of the regulators in relation to the markets through Self-Regulating Organisations

forming a supervisory umbrella authorised under the framework of the Act. Arguably, the

Committee’s recommendation opened up for framework legislation within Danish financial

securities market supervision, i.e. deregulation.15 Among the advantages of the framework approach

favoured by the Committee is the increased incitement for market players and institutions16 to

display more responsibility and commitment towards the regulatory regime (BørB95a:p.25).

Among the most radical proposals presented by the Committee was the change of the regulatory

structure by separating market supervision from solvency and company supervision. “Fondsrådet”

(the Danish Securities Council) was established in 1996 with responsibility for ensuring

transparency, competitiveness and efficiency in the securities markets (Vphl:S.83(1)), i.e. undertake

market supervision. The DFSA, which performs solvency and company supervision, functions as

secretariat to the Council (Vphl:S.83 and 84). Market supervision17 is concerned with the overall

regulation of the market place in respect of disclosure requirements in order to achieve the desired

transparency (PedK98:p.10912). CSE is responsible for part of the market supervision, including

the formulation of specific rules, which must be notified to the Council, however. CSE also

performs market surveillance (stockwatch),17 meaning that its role as frontline supervisor of the

market is comparable to the market monitoring tasks of the British investment exchanges

(LseF98:p.34). In connection with the reform, CSE was subjected to a statutory requirement that it

14 Translation, BørB95a:p.25: “The specific regulation of the securities market and its institutions will in the future beundertaken in close interaction with the market.”15 On certain points, e.g. rules on netting and clearing, the Securities Trading Act contains detailed provisions, however.16 The institutions of the securities market are identified as stock exchanges, securities centres and clearing houses,which should be obliged to contribute actively and on their own initiative to the development of rules and systems(BørB95a:p.31 and PedK98:p.10912)).17 The concept of “market supervision” is discussed in the terminology section of this thesis, in particular as concernsits relationship with “market surveillance” or “stockwatch”.


be reorganised in the form of a private limited company.18 The establishment of other exchanges

was allowed, though CSE remains the Danish official listing authority. This meant that some of the

regulatory and supervisory powers previously vested in CSE were transferred to the new

organisation, the Danish Securities Council, because CSE should not supervise other, competing

exchanges (BørB95b:p.35).

Though CSE’s sole right to function as a stock exchange in Denmark was revoked with the

introduction of the Securities Trading Act in 1995, the Stock Exchange Committee, which

undertook the securities legislation overhaul, expected the development to go in the direction of a

natural monopoly situation given the obvious scale advantages of a stock exchange (BørB95b:p.27).

Furthermore, trading may be effected on other markets not previously regulated by stock exchange

legislation, e.g. the Danish OTC market in Horsens and the money market. The free access to stock

exchange business facilitated regulation of all markets by the same act (BørB95b:p.26). The

operation of other exchanges is permitted in the form of an “autoriseret markedsplads” (authorised

market place) (AMP).19 The first AMP, which provides a market in unlisted securities (and thus

does not constitute a direct challenge to CSE) commenced operations in 1998 (see section 3.1.3.).

As an organisation, the Securities Council operates on a more general level than the DFSA, inter

alia in connection with questions of principle and reviews of decisions and orders issued by the

stock exchanges (BørB95b:p.36). The Securities Trading Act does not contain detailed rules on

IPOs, trade in listed securities and the conduct of listed companies. The Act rather confers rule-

making powers on the Securities Council and the securities markets (AndI96:p.11).20

2.4.2. The British Financial Services Authority

2.4.2.1. Regulatory Structure under the Financial Services Act 1986 and Beyond

Reflecting a need for deregulation of financial services in Britain, the FSA86 introduced a

decentralised regulatory system. The new proposed legislation in the area builds on the existing

18 A Danish “aktieselskab” (“A/S”).19 Cf. Vphl:Chapter 11. AndD96 and CseS98 translate “autoriseret markedsplads” by “authorised market place,” though“authorised market” would also cover the Danish concept.20 “Aktieselskabsloven” (the Danish Companies Act) governs the organisation of all private limited companies,including those providing financial services. Capital, solvency and other specific requirements on banks, investmentservice companies and other financial services providers are set out in individual company acts. The Danish SecuritiesTrading Act governs the organisation of securities centres and clearing centres, however.


regime, and the point of departure for an overview of UK financial regulation must consequently be

a study of the FSA86 regulatory structure.

Five component parts of the decentralised 1986 regulatory regime are identified:

1. The Securities and Investments Board (SIB)Recognised Bodies (RBs):

2. Self-Regulating Organisations (SROs)3. Recognised Professional Bodies (RPBs)4. Recognised Investment Exchanges (RIEs)5. Recognised Clearing Houses (RCHs)

Banking supervision responsibilities were vested in the Bank of England and were not transferred to

the FSA until 1998. Insurance business was supervised by the Insurance Directorate of HM

Treasury but is now being placed under the regulatory umbrella of the FSA.

The 1986 regulatory regime can be divided into three levels of regulation.21

1. Government LevelHM Treasury, the Office of Fair Trading, the Bank of England and the Secretary of State forTrade and Industry

2. Supervisory LevelThe Securities and Investments Board (delegated legislative, investigative and enforcementpowers)

3. Practitioner LevelRecognised Bodies (SROs, RPBs, RIEs, RCHs)

The FSA sees three overall advantages spring from the emergence of a single financial services

regulator. First, the approaches to risk-based supervision22 may be aligned in keeping with the

effacing distinction between different types of financial business. Second, the supervision of

complex groups will be lifted to a higher level as all UK regulation is housed in one institution.23

The supervisory tools available to the FSA constitute the third main advantage of the centralisation

of the regulatory regime because of the obvious potential for information and knowledge exchange

and development (FsaM98a:p.35ff).

The decentralised agencies under the FSA86 are best discussed in connection with the contrastive

survey of regulatory and supervisory powers and responsibilities of the financial services watchdogs

21 Based on BlaR97:p.66.22 See section 4.2. on banking supervision for an introduction to risk-based supervision and value-at-risk models.23 See the discussion of supervision of financial conglomerates, section 4.3. below.


in Denmark and Britain provided in a separate section below. The following section briefly outlines

the contours of the predecessor to the FSA and “mother” of the specialist agencies, the SIB.

2.4.2.2. The Securities and Investments Board

“The FSA […] is in corporate and legal terms the Securities and Investments Board(SIB) renamed” (FsaF97:p.5).

The Securities and Investments Board (SIB) had its statutory base in the FSA86, though the SIB

was established already in 1985 (SIBa). The SIB may be considered an umbrella organisation

overseeing a variety of specialised SROs which, in their turn, carry the responsibility for the

regulation of different aspects of the financial markets. The FSA86 did allow the SIB to regulate a

firm directly, but the SIB preferred leaving the actual individual regulation to the relevant specialist

SRO24 (SIBb). Whereas the establishment of the SIB collected under one roof the bulk of the

supervision of financial markets, quite a large number of independent organisations and bodies

continued their functions as regulators of sections of the markets. Most notable among these was the

Bank of England, which retained the responsibility for authorisation and supervision of deposit-

taking institutions as stipulated in the Banking Act (SIBb). As will be discussed below, this division

of tasks and the ensuing possible duplication and lack of transparency and co-operation between the

different regulators became one of the reasons for establishing the new FSA comprising in one

organisation the functions of the SROs and other RBs which had until then been subject to

recognition and supervision of the SIB.

2.4.2.3. The Financial Services Authority

The creation of the UK single financial services regulator aimed among other things at ensuring that

shared standards apply to all types of regulated players in the financial world (FT97b). The division

of supervisory tasks between the subsidiary agencies of the SIB obstructed the formulation of such

standards. The creation of the FSA must also be seen as a recognition on the part of the UK

legislators that the traditional demarcation lines between the various types of financial services

providers are gradually breaking down. Investment service companies, banks and the insurance

industry contract marriages across the financial sector, and the SROs, the HM Treasury Insurance

Directorate and the Bank of England must have experienced an ever-increasing need for

24 Beside the financial market infrastructure companies, 13 (large) companies and groups were directly regulated by theFSA in 1998, referred to as Directly Regulated Businesses (DRBs) (FsaA98:p.19).


information exchange. Firms offering a broad range of financial services products may have seen

competitors offer nearly the same product as their own, but subject to more lenient regulation

because their activities were the responsibility of another regulator (FT97a). The FSA stresses the

aim of applying a consistent, but differentiated, approach to supervision of the various types of

financial services providers. Harmonisation of capital standards is one example of the recognition

that the boundaries in the financial sector have been redrawn. The FSA will now base capital

requirements on an assesment of the risk of the company in question (FsaM98a:p.25).

In 1990, the SIB published ten overall principles which the regulated firms were under an obligation

to observe in order to be authorised and to uphold the authorisation to conduct business in the

financial markets. The FSA followed this procedure by publishing a revised set of principles in

September 1998. Table 2.1. below lists the two sets of principles.

Table 2.1. Principles to be observed by regulated firmsSIB’s 10 Principles FSA’s 8 (Draft) Principles1. Integrity 1. Integrity2. Skill, Care and Diligence 2. Skill, Care and Diligence3. High Standards of Market Conduct 3. Effective Control and Organisation of the Affairs

of the Firm4. Obtain Information about Investment Objectives of Customers

4. Prudential Conduct and Organisation of the Affairs of the Firm

5. Provide Information for Customers 5. Proper Standards of Market Conduct6. Avoid Conflicts of Interest and Prioritise the Customer’s Interest

6. Due Regard to Interests of Customers and Fair Treatment

7. Protection of Customer Assets 7. Keep Faith with Customers Entitled to Rely on the Firm’s Judgment

8. Maintain Adequate Level of Financial Resources

8. Open and Co-Operative Relation with Regulators

9. Responsible Internal Organisation10. Relations with Regulators in the form of co-operation and information

(Sources: SIBc and FT98a)

The two sets of principles are similar in most respects and provide a very general framework within

which regulated firms should conduct their business.25 As such, the principles do not offer tangible

guidelines for firms to follow in terms of e.g. reserve requirements but rather weave a fine ethical

net enmeshing those unfit to enter the financial markets. However, together with the requirements

set out by statute - e.g. solvency and legal capacity - the principles outline the standards expected of

25 The SIB Principles were initially criticised for being vague, but they are carefully worded in order to set out flexibleguidelines for regulated firms (BlaR97:p105f).


regulated entities. The FSA Principles forms a basis for disciplinary action, as they constitute the

fundament for the entire approach of the regulator (FsaD98:p.15).

The principles should also be seen in the context of FSA’s status in respect of certain sectors of the

financial world. The FSA does not enjoy rule-making powers over banks, building societies,

insurance companies and friendly societies, as they are governed directly by the financial legislation

(HMT98a:p.19). Prudential guidelines constitute the most important regulatory instrument available

to the FSA vis-à-vis these sectors.

2.5. Shifting Strategies – Reorganising Regulators in Denmark and the UK

The above introduction to the development and present structures of the regulatory regimes in

Denmark and Britain over the last 15 years reveals somewhat differing attitudes to financial

supervision in the two countries. Today, the regulatory structures are approaching each other in

terms of supervisory scopes of the main regulators.

Denmark has employed a centralist approach to regulation, though the insurance and mortgage

credit industries were supervised by separate entities until 1988 and 1990, respectively. The large

areas of investment and banking areas have traditionally been among the responsibilities of the

main regulator. A few years ago, the Danish Securities Council edged in on the powers of the

DFSA, taking responsibility for market supervision.

Britain decentralised regulation in 1986, but is now collecting the FSA86 regime under one

regulatory roof along with supervision of insurance business and banks. The FSA will thus become

an all-encompassing regulatory body with authority over the entire financial sector in Britain.

The difference between the two countries is narrowing in another respect. While not completely

unknown in the financial sector previously, Denmark recently introduced framework legislation in

financial regulation. Britain significantly enhanced its framework approach to regulation.

The above discussion of the development and structure of financial regulation provides the

necessary backdrop for an analysis of the distribution and use of regulatory powers and

responsibilities in Denmark and the UK set out in the following section.


3. Regulatory Powers and Responsibilities

Providers of financial services rely on the ability of their regulators to police their business areas

and to maintain public confidence in financial markets and the market infrastructure. Regulators

thus constitute the one factor in financial services that should never fail. It is therefore evident that

the regulated entities keep a wary eye out for changes to the regulatory regimes. Nevertheless,

financial regulation has shifted in scope and focus over the last decade, as outlined in the previous

sections. With the establishment of the Securities Council, Denmark introduced a new level of

regulation, while two years later, Britain decided to remove a floor from its regulatory house.

With a view to providing a contrastive overview of regulatory scopes, this section scrutinises the

comparatively new structure of Danish regulation and the freshly developed British FSA as regards

the distribution of the regulatory responsibilities and the powers available to the financial services

regulators in Denmark and Britain. The Danish regulatory regime is discussed first before moving

on to the UK single regulator.

3.1. Scope and Distribution of Regulatory Powers in Denmark

3.1.1. Regulatory Responsibilities Redistributed – Enter the Securities Council

The introduction of new level in Danish financial regulation, the Securities Council, was much

discussed. SchD96 (p.42) argues that previously, market supervision was divided between CSE and

the DFSA, but now it is collected in one organisation, viz. the Securities Council. It would,

however, be reasonable to argue that a two-tier structure continues to apply given the fact that CSE

and the AMP may still issue rules governing their members. It is true that the rules are subject to

notification to the Council, but arguably, the idea of delegating the powers to the markets does

suggest a degree of independence on the part of the markets. The Council cannot be expected to

interfere very actively in the decisions of the individual market.26 Indeed, the 1996 Annual Report

of the Danish Securities Council (published with an English translation) states in its review of its

first operating year that:

26 AndI96 (p.104) furthermore states that the Council can only amend rules issued by the stock exchanges where suchrules are deemed not to meet the requirements of the markets.


“In a few cases the Danish Securities Council has asked for further comments on therules submitted which has led the market operators to change the rules themselves”(FonB97:p.49)

The distinction between the responsibilities of the two regulators, the DFSA and the Securities

Council, remains somewhat confused. This inconsistency appears curious, as one of the purposes of

enacting one single piece of overall securities legislation was to reduce duplication, promote

flexibility and increase transparency for market participants and institutions, much as was the

intention of the UK financial services reform initiated in 1997 (HMT98a:p.2). As mentioned, the

Securities Council is responsible for market supervision, while CSE and the AMP undertake the

immediate supervision and surveillance of activities in their respective markets. However, CSE and

the AMP are subject to supervision by the DFSA in terms of continuing assessment of the standard

of their reporting systems. Moreover, the DFSA supervises the compliance of CSE and AMP

member firms with the rules of the markets (Vphl95:S.86). The apparent intertwined regulatory

scopes can be explained by the DFSA’s function as secretariat of the Securities Council. The

supervisory responsibilities of the Council are carried out by the DFSA in its exercise of this

function. The DFSA is thus responsible for the supervision of compliance with the legal rules which

fall under the authority of the Securities Council. Hence, the DFSA in 1996 and 1997 established a

market supervision function dealing with e.g., insider trading and price rigging (FinB98:p78f).

WerB97 (p.80ff) identifies 12 areas in which the Council enjoys sole authority:

The Danish Securities Council1. may decide to apply the Securities Trading Act to new financial instruments or to exempt

existing instruments from the scope of the Act.2. may issue rules to the effect of defining the concept of “good securities trading practice,” which

all market participants are required to observe.3. may set out detailed rules on the contents of prospectuses.4. is responsible for drawing up detailed rules on suspension and delisting of securities.5. enjoys the authority to grant exemption from the requirement for extension of an offer on equal

terms to the rest of the shareholders in the case of a take-over bid or a bid which will result inthe offeror obtaining significant influence over the company.

6. decides on dispensations from the requirements on the content of semi-annual accounts.7. receives prospectuses and checks their compliance with the legislation.8. issues rules governing the general function of the markets, subject to supplementary rule-

making by the stock exchanges.9. decides on sanctions when rules are breached10. may intervene on a general level in the rule-making of the stock exchanges.11. may authorise the establishment of an inter-dealer-broker (“værdipapirmægler” AndI96:p.81).12. is the appeals body for a range of decisions made by the financial infrastructure companies.


The DFSA is responsible for the below main functions (BørB95b:p.99ff)

The DFSA:1. issues rules on solvency, business procedures, internal control etc.2. authorises Danish credit institutes and investment companies (European Passport)3. authorises other market institutions4. supervises the solvency of Danish market participants5. supervises internal controls, business procedures etc. of Danish market participants6. supervises the institutions of the securities market7. investigates alleged insider trading and price manipulation8. decides on sanctions when rules are breached9. maintains international co-operation agreements10. may request the opinion of the Securities Council in matters of principle within its area of

responsibility

CSE has the following main responsibilities and duties (BørB95b:p.89f)

Stock exchanges:1. draw up the stock exchange code of ethics on securities trading as well as supplementary rules

on issuers’ disclosure requirements, prospectus and admission requirements2. issue rules on the conduct of traders, including rules on admission to the market3. formulate rules on the function and transparency of the market4. make rules on reporting for the continuing market surveillance and disclosure in general5. perform the frontline market surveillance and inform its supervisor of breaches of market rules6. must admit those eligible for trading to the market7. must provide transparency in the trading8. accepts prospectuses and admits securities for listing9. must publish prices and trading in listed securities10. receive and communicate information on listed issuers

CSE’s issuance of rules is subject to notification to the Securities Council.

Beside its function as supervisor and regulator of the securities market, the Securities Council

constitutes the appeals body to which appeals lie from decisions of some importance made by stock

exchanges, authorised market places, clearing centres or securities centres, cf. Vphl95:S.88(2).27

The Securities Council is an independent public council by status, which means that it forms part of

the public administration and is subject to Danish administrative law and principles. The Minister

for Business and Industry, who is also responsible for the DFSA, appoints the members of the

Securities Council (SchD96:p.66). The Danish Parliamentary Ombudsman performs a general

check on the activities of the Council (WerB97:p.80).

27 It has been criticised that decisions of principle or decisions which are not deemed significant cannot be appealed.Under the previous securities legislation, it was possible to lodge appeals against all decisions (WerB97:p.82)


3.1.2. Appeals

Appeals from decisions on registration and changes of rights with securities centres lie to

“Klagenævnet for Værdipapircentraler” (the Securities Centres Complaints Board).

“Pengeinstitutankenævnet” (the Financial Services Complaints Board) handles complaints

submitted by individual as well as corporate bank customers. Decisions made by the Securities

Council and the DFSA may be brought before “Erhvervsankenævnet” (The Danish Commerce and

Companies Appeal Board) or, in some cases, the courts of justice may consider decisions made by

the Council and other appeal bodies. The Consumer Ombudsman may review the activities of

financial services providers in relation to the Danish Marketing Practices Act28 (WerB97:p.83ff).

3.1.3. Market Measures – The Powers of CSE and AMP

CSE operates a unitary market for derivatives, shares and bonds alike29 (AndI96:p.24). The first

Danish Stock Exchange Reform in 1986 modernised CSE by introducing electronic trading

systems, strict trading notification requirements in order to improve transparency and automatic

registration of issuance and trading in shares30 (AndI96:p.20).

Until 1998, the investment service company “Dansk OTC” was the only market place for unlisted

securities. It lodged an application with the DFSA for the authorisation of Denmark’s first AMP

“Dansk Autoriseret Markedsplads A/S” (Dansk AMP) (“Danish Authorised Market Place”) in

early 1998 (BØR98a). Trading is only effected over the counter and, consequently, in unlisted

securities. This does not constitute an immediate threat to CSE’s monopoly. Rather, IT companies

and other fast-growing businesses may be attracted to the new market place by the less strict

requirements and capital generation opportunities offered by Dansk AMP. Later, some of those

companies are likely to float their shares on CSE. The Danish securities market in general and CSE

in particular will thus profit from the new initiative. Dansk AMP was also the first Danish securities

market place to use the internet as its dealing system offering real time prices and other information

on the web (AMP98). The securities brokerage company Difko Børsmæglerselskab A/S was the

first in Denmark to offer low-cost trading in securities via the internet (DBS98).

28 “Markedsføringsloven”. Roughly the Danish equivalent of the UK Fair Trading Act.29 Most other countries have traditionally established separate markets for the individual types of securities.30 The Danish Securities Centre has registered bond issuance and trading since 1983. All registered shares aredematerialised and no physical share certificates are held in deposit.


CSE and AMP may issue rules subject to the approval (or supervision) by the Securities Council.

The general supervision of adherence to these rules is the overall responsibility of the DFSA,

though in actual reality, the markets perform the frontline supervision of their members’ compliance

with the rules (VphL95:S.18(3)). In the best case scenario, the different supervisors ensure a double

check on rule-making, compliance with the rules and their applicability. In the worst case scenario,

the complicated and confusing distribution of supervisory responsibilities is time-consuming and

open to abuse by market participants capitalising on the variety of supervisors, i.e. supervisory

arbitrage. Another aspect of the regulation of listed companies is the potentially damaging double

supervision performed by the DFSA. Listed companies are supervised by the DFSA both through

its supervision of the securities markets31 and its solvency and company supervision. The latter

supervision may make the DFSA aware of matters, or result in decisions, affecting a regulated

company which must be communicated to the entire market and thus influence the market

supervision (ChrF97:p.15).

CSE is responsible for the frontline supervision of trading in listed securities. There is an obligation

to notify the DFSA in case of suspected irregularities, for instance insider trading and code of ethics

violations. The DFSA can impose sanctions if deemed necessary. The two Danish securities

markets regulate their members directly and can consequently order their members to change their

behaviour and ultimately dispel companies from trading in their markets. As a new means of

ensuring compliance with disclosure requirements, CSE enjoys a direct power to fine issuers up to

DKK 1m (SØN98).

3.1.4. Framework Function – Reviewing Legislation

In the light of the above criticism of the possible adverse consequences flowing from the intricate

melange of the various regulators’ responsibilities, it is necessary to look at the intentions of the

legislator when introducing a new level of supervision in the form of the Securities Council. The

Stock Exchange Committee white paper mentions various options discussed by the Committee. One

was the establishment of self-regulating organisations (SROs) along the lines of the UK system in

force at the time. A Danish SRO would be established and managed by the securities trading

industry and would function as the regulator of its own members. The Committee rejected the SRO

31 CSE answers to the DFSA when exercising its market monitoring powers, while its issuance of rules is subject to thecontrol of the Securities Council.


option, referring to the possible conflicts that might arise out of the organisation’s limited powers,

e.g. in respect of rules which would apply to members only and not to third parties (BørB95:p.91f).

The preferred option was the establishment of the Securities Council, which would ensure the

proper function of securities markets under the proposed liberalisation of the access to establish new

stock exchanges in Denmark. In a dissident statement, one member of the Stock Exchange

Committee argued that a securities council would not be necessary, and that it would create a

possible confusion of the distribution between the powers and authority of the regulators adding to

the overall cost of regulation (BørB95:p.95f).

To sum up in Madisonite terms, the legislative, judicial and executive bodies in securities market

supervision take on different forms32 in the course of rule formulation, supervision and

enforcement. The obvious regulatory intermediary is the stock exchange itself. The efficiency of the

supervision – and that of the market – is totally dependent on the quality of the surveillance

performed by the exchange of its own members. It cannot, however, be assumed that the legislator

envisaged this bottleneck in Danish stock exchange supervision. It would appear that the quality of

the stock exchange management and its willingness to investigate irregularities does vary

considerably. In January 1999, a financial scandal erupted in Denmark. Preliminary examinations

showed that a director of PFA Pension, a large pension fund, had forged signatures on guarantees

for not less than DKK 2 billion. The forgery was discovered following an investigation into a

suspiciously opaque construction project involving two respected property companies listed on

CSE. The president and CEO of CSE placed the companies on the observation list after his enquires

to an intermediary party which had acquired large shareholdings in the companies remained

unanswered. This accounts for a violation of the stock exchange code of ethics. CSE itself

undertook an investigation of the affairs, leading to the discovery of one of the largest financial

fraud cases in Denmark. The CSE president and CEO is credited with the discovery. One

newspaper reported that

“I sine første syv måneder på posten har Fondsbørsens administrerende direktør slåethårdt ned på uregelmæssigheder i finansverdenen […]”33

32 I.e. the rule-making, supervisory and enforcement powers of CSE, DFSA and the Securities Council overlap.33 POL99a. Translation: “During his first seven months in office, the president and CEO of the Copenhagen StockExchange has launched a crackdown on inconsistencies in the financial sector […]”


This statement reduces the credibility of the intentions of the financial services legislators as well as

those of the DFSA and the Securities Council. It would appear that seven months prior to the

incident, CSE did not crack down on inconsistencies with its full power. It was not the DFSA that

followed up on the breach of the code of ethics, though it was informed of the irregularities just

before the pension fund itself discovered the fraud. The obvious conclusion to draw is that the

efficiency of Danish stock exchange supervision revolves around the attitude of the CSE

management, which is hardly an ideal situation.

3.1.5. Security in Trading – The Securities Trading Act

Transparency and accountability in the Danish financial regulation regime are issues that have been

debated publicly in recent years, much as is the case in the UK. The DFSA’s involvement in and

handling of financial scandals have given rise to a discussion of the functions and accountability of

the DFSA (JP97b). The supervisor’s approach to crises in regulated firms and industries will be

dealt with in section 5.1. below.

With the implementation of the Securities Trading Act, all regulation of the securities market in

Denmark became embodied in one act, which is a further approximation to the approach

traditionally favoured in Britain. Generally speaking, the provisions of the Securities Trading Act

which governs the structure and management of financial institutions correspond to “Bank- og

Sparekasseloven” (the Danish Bank and Savings Bank Act) (SchD96:p.46). This alignment reflects

a recognition on the part of the legislator that the section of the financial services providers which

facilitates trade in securities are comparable to banks and consequently needs to be regulated on an

equal basis with banks. Another advantage of comparable legislation is transparency, and many of

the provisions (for instance solvency requirements) are shared between the two types of financial

services providers. The Stock Exchange Reform II also resulted in the drafting for the first time of

separate legislation on clearing and settlement.

The Stock Exchange Committee recommended that legislation should only set out general

principles in order for rules to be decided and administered as close to the markets as possible. The

principles allow rules to be quickly adapted to changing market conditions and adjusted to specific

market segments (BørB95b:p.34).


The framework nature of the legislation is underpinned by the rule-making powers allotted to the

regulators. In early 1996, the Securities Council, the DFSA, “Erhvervs- og Selskabsstyrelsen” (the

Danish Commerce and Companies Agency) and CSE issued a number of rules and orders in order

to fill out their new role and adjust their regulation areas to the new legislation (SchD96:p.35). The

framework approach to legislation is not entirely new to Denmark, however. The regulators of the

securities markets enjoyed rule-making powers to a certain extent before the 1995 reform

(SchD96:p.37).

Regulatory powers and responsibilities under the Danish Securities Trading Act are not easily

pigeonholed. The regulators share powers in a number of areas, and while the choice of regulator

does not pose a problem for the regulated entities as was the case in Britain, there is a risk that

regulated firms may either engage in regulatory arbitrage or suffer from excessive supervision. The

three main Danish textbooks34 on investment law devote much attention to the identification of the

distribution of the tasks of the regulators.

Having discussed the distribution of Danish regulatory powers in this section, the focus is now

directed at the British FSA and its component parts.

3.2. Scope and Distribution of Regulatory Powers in Britain

3.2.1. Regulatory Responsibilities Redistributed – Exit the SIB

The umbrella organisation comprising the specialist agencies set up under the FSA86 gave way to

the new FSA, which is now responsible for the 1986 regulatory regime. The decentralised system is

being phased out, but is still in operation. This section provides a survey of the present and future

regulatory institutions in Britain.

3.2.2. Recognised Bodies

The bodies, organisations and institutions under the aegis of the SIB were collectively referred to as

Recognised Bodies (RBs). Beside three SROs, the SIB supervised nine Recognised Professional

Bodies (RPBs), six Recognised Investment Exchanges (RIEs) and two Recognised Clearing Houses

34 AndI96, SchD96 and WerB97 (See the Bibliography)


(RCHs) as listed in tables 3.1. to 3.4. below. For the purposes of this paper, only the RBs in

function in 1997, just before the advent of the FSA are relevant.

3.2.2.1. Self-Regulating Organisations

Table 3.1. The SROsAbbrev. Name FunctionIMRO The Investment Management

Regulatory OrganisationRegulation of fund management firms

SFA The Securities and FuturesAuthority

Regulation of firms operating in the organised City markets -LSE, LIFFE, LME etc.

PIA The Personal InvestmentAuthority

Regulation of independent financial advisers to privateindividuals, e.g. life assurance, personal pensions, unit trustsetc.

(Source: SIBg)

PIA comprises two former SROs dealing with the insurance business. The Life Assurance and Unit

Trust Regulatory Organisation (LAUTRO) covered the retail marketing of life assurance and unit

trusts, and the Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA)

was responsible for the regulation of insurance brokers and independent investment advisers

(BreH95:p.340). With the creation of PIA, the entire retail facet of investment products was collated

into one organisation. The regulatory scope of the SFA includes the important investment banking

industry. IMRO regulates firms which offer fund management, operate authorised unit trust

schemes or other collective investment schemes or which provide investment advice to institutional

investors (IMRa).

The work of the SROs is divided between authorisation, supervision, rule-making, complaint

management and enforcement. The relationship between the regulator and the regulated firms is set

out in a contract under which firms become members of the relevant SRO frontline regulator

(HMT98a:p.19). The cost of regulation is borne by the member firms which in return are offered an

increased public appeal in the form of the establishment of trust and safety in the relationship with

investors. PIA is the largest of the SROs in terms of member firms. The number of SRO member

firms totalled 6,257 in 1998 (Fsa98:p.46).

In order to authorise firms, SROs are responsible for probing the competence of firms wishing to

conduct investment business. Once authorised, the firms are placed under the supervision of the

SRO in question. Supervisory tasks include capital adequacy supervision and monitoring of

business procedures. As part of the contract between the SRO and its member firms, the frontline


regulator issues rules directly regulating the investment business. The SRO can enforce the rules

through its power to place further requirements on its members. Such requirements include the

imposition of fines, and the demand for reimbursement of any losses on the part of misinformed or

misled investors. Member firms may also be excluded and deprived of their authorisation to offer

investment services. Finally, SROs are required to create efficient systems for the handling of

complaints, e.g. Ombudsman authorities (FsaT98:p.13).

The activities and responsibilities of the SROs will be transferred to the FSA and already in 1998,

the SRO staff became employed by the FSA. Abolishing an intermediary level, the SROs hence

integrate in the single financial regulator. The advantages of a collected financial regulator are

obvious on the part of the investors, who may have experienced difficulties in finding the

appropriate regulator in case of complaints and enquiries. Investors now need not know whether

their investment is placed with a company which is regulated by IMRO, SFA or PIA, as they find a

single contact facility in the FSA. Under the auspices of the single financial regulator, investment

service providers are also ensured a level playing field through the application of uniform standards

throughout the entire financial services industry.

As discussed in section 3.1.4. above, the Danish Stock Exchange Committee considered the option

of establishing self-regulating organisations35 in Denmark but rejected this possibility because the

SRO member contracts would not be enforceable towards third parties. However, the self-

regulatory regime in Britain does not seem to constitute a basis for such concerns. Arguably, the

introduction of self-regulating organisations in Denmark would reduce the basis for the criticism

voiced in respect of opaqueness in the distinction between the regulators’ intertwined roles as rule

maker, supervisor and enforcer.

The SIB did not enjoy direct powers over the members of the SROs unless on the specific request of

the organisation or in case the SRO appeared not willing to act (BlaR97:p.73). As the UK SROs are

being rolled into the single regulator, the contractual basis for regulation will be replaced by statute.

Hence, the powers to impose sanctions on member firms reach further under the new regime. The

35 The Committee termed the UK concept “Self Regulatory Organisation” (BørB95b:p.91), whereas an SRO in theterminology of the Financial Services Act 1986 is a “Self-Regulating Organisation”. However, a “Self-RegulatoryOrganization” is an agency under the 1934 US Securities Exchange Act with very similar structure and powers (NYSa).It would appear that the choice of term is subject to some discrepancy, as HM Treasury employs the term “selfregulatory organisation” in a commentary to the draft FSMB (HTM98a:p.14).


FSA can fine and prosecute members and non-members alike due to its role as financial services

industry watchdog (FT98b). The power to “fine anyone engaging in market abuse” is a significant

new remedy under the FSMB (HMT98a:p.7). SFA, which regulates investment banks and brokers,

attempted in 1998 to define its powers better by announcing its intention to quadruple its fines on

member firms (FT98e). SFA expressed its desire to apply a lenient approach towards those firms

appearing to make an effort at complying with requirements imposed by the SRO. It will still be

possible to raise the level of fines under the new regime, as the FSMB sets no limit on the fines

which the FSA may impose (HMT98a:p.45).

The FSMB is widely open to interpretation, and the FSA can decide for itself the specific approach

to regulation. Clearly, the FSA should aim at striking a balance between inspiring respect in those

regulated while at the same time appearing fair. The pensions mis-selling review36 meets this

objective by cracking down on firms not satisfying the FSA requirements and by encouraging those

performing the review on time. The FSA chairman expressed this view when stating that the FSA

should be “fair, not too costly and able to respond to mischief effectively and efficiently” (FT98s).

The principle of enabling financial services businesses to regulate themselves through designated

SROs has been criticised. Especially the pensions mis-selling scandal has been taken as proof that

an industry is not capable of imposing adequate control measures on itself (FT98o). Only 17 times

in the last eight years, prosecutions for insider dealing have been instigated and only 12 of these

were successful (FT98b). Seen from a different perspective, it has been argued that the SROs had

“progressively taken on less of the self and more of the regulatory” (GraA97:p.12).37 The argument

goes that the various frontline regulators competed on toughness towards the industries they

regulated. The increase in the level of fines imposed in recent years could be interpreted as proof

that the regulators are becoming tougher. Both arguments reflect dissatisfaction with the FSA86

regulatory regime and acceptance of the unified financial services regulator. The main cause for

concern in respect of the new regime is the broad scope of the FSA. Excessive costs, powers and the

bureaucracy inherent in a large organisation top the list of concerns aired by the industry (FT98p,

FT98q and FT98r). Accountability, or supervision of the supervisor, is dealt with in section 7.

36 The personal pensions mis-selling scandal involves the provision of incorrect advice by pension managementcompanies to individual policy-holders. See section 5.2.2. below.37 BlaR97:p.79 also argues that the SROs were seeking “to project an image of an independent regulator”.


3.2.2.2. Recognised Professional Bodies

Table 3.2. The RPBsAbbrev. Name FunctionACCA The Association of Chartered Certified AccountantsIoA The Institute of ActuariesICAEW The Institute of Chartered Accountants in England and

WalesICAS The Institute of Chartered Accountants in ScotlandICAI The Institute of Chartered Accountants in IrelandIBRC The Insurance Brokers Registration CouncilLS The Law SocietyLSNI The Law Society of Northern IrelandLSS The Law Society of Scotland

The RPBs regulate some professionswhich as a part of their activities,though not the main one, conductsinvestment business. Once authorised,the firms’ main activities are alsosubject to regulation by the RPBs,which have the same responsibilities asthe SROs (see the above section)

(Source: SIBf)

Investment business is open to other entities than specialised investment firms. Law firms and

accountants may desire, as an integral part of the services they offer, to conduct investment business

in the form of counselling and actual placement of their client’s funds. This business is not the main

activity of such companies, but recognising the need for regulation on a par with other investment

service providers, these professions had to obtain an authorisation before they could carry on

investment business. The respective professional bodies of the various professions were given

responsibility and powers to regulate and supervise on an equal basis with the SROs

(FsaT98:p.13f).

The RPB regime is being phased out in connection with the establishment of the UK single

regulator. All future regulation of investment service business will be subject to authorisation by the

FSA (HTM98a:p.8). Former RPBs will be directly supervised by the FSA (FsaM98a:p.12).

3.2.2.3. Recognised Investment Exchanges

Table 3.3. The RIEsAbbrev. Name FunctionLSE The London Stock ExchangeTradepoint Tradepoint Financial Networks Plc.LIFFE The London International Financial Futures and

Options ExchangeOMLX The London Securities and Derivatives Exchange

Ltd.IPE The International Petroleum Exchange of London

Ltd.LME The London Metal Exchange

The RIEs are responsible for business onthe exchanges being safe and orderly,thus protecting investors.

(Source: SIBe)


The RIEs constitute the UK counterpart of the Danish financial services legislation concept of stock

exchanges and AMPs. As appears from Table 3.3., the activities of the exchanges range from

traditional share trading to financial and commodities derivatives trading. Upon recognition by the

FSA, the exchanges become responsible for the proper and efficient functioning of the business on

the exchange. The exchanges must operate within, and comply with, the London Code of Conduct,

which is maintained by the FSA (FsaT98:14). The London Code of Conduct38 for principals and

broking firms in the wholesale market was previously issued by the Wholesale Markets Supervision

Division of the Bank of England with the main aim of setting out

“the principles and standards which broking firms and their employees, and ‘coreprincipals’ in the wholesale markets (i.e. banks, building societies plus financialinstitutions supervised under the Financial Services Act 1986) and their employeesshould observe”39

Breaches of “the letter or the spirit of the Code” can be made the subject of a complaint which,

however, at most can result in a reflection of the breach in the “assessment of the fitness and

propriety of these institutions” (BanL95:p.2). Any negative reference to a financial services firm

made in public is serious, though. The Code covers money market institutions which are admitted to

a list of such institutions and consequently, in a somewhat confusing terminology, referred to as

“Listed Money Market Institutions” (FSAc).40 The OTC markets and other inter-professional

markets are among the listed institutions (FsaT16).

LSE is the most important of the RIEs. With the responsibility for ensuring the efficient and fair

operation of its market, LSE conducts a thorough investigation of firms before admitting them for

listing. Under the proposed new financial services legislation in the UK, LSE will obtain the power

to fine listed companies or their management if rules are violated. Existing powers include written

warnings and removal of listings in extreme cases (FT89b). Hence, the power to impose fines fills

out a gap in the sanctionary remedies available to the Exchange. LSE publishes Listing Rules (the

38 The 20-page Code is a fine example of the concept of “moral suasion.” Codes of market practice and other non-legalinstruments have traditionally been predominant in UK (banking) regulation. The famous “lifted eyebrow” of thegovernor of the Bank of England was the first instance in regulation before applying stricter measures (NorB91:p.7ff).In Denmark, the DFSA also gives the regulated entities “advice” which, if not followed, can be substantiated by ordersand sanctions.39 Quotation from the London Code of Conduct, 1995, Foreword.40 The institutions appear on a list, and are not as such “listed” on an investment exchange.


“Yellow Book”) for the issuers of securities to observe. The Rules may be amended by specific

rules on individual types of securities, e.g. depositary receipts (LseD98:p.5).

LSE operates a main market (Official List), which attracts more international investors than any

other exchange in the world, as well as the Alternative Investment Market (AIM) established in

1995, with lenient listing rules for smaller, expansive companies (LseF98:p.15). The LSE regulate

the trade in listed companies, and as disclosure is one of the most important factors affecting trade

in shares, the Exchange operates a Regulatory News Service (RNS), which handles pre-publication

validation of all announcements issued by listed companies (LseF98:p.35). See Appendix B for

examples of AIM and LSE notices in respect of listed shares.

LSE experienced two waves of deregulation and modernisation, as was also the case for its Danish

counterpart, CSE. The 1986 Big Bang broke down the traditional securities trading restrictions and

opened up trading to a wider range of companies. Minimum commission requirements were

abolished as was the traditional separation of member firms so as to allow all firms to act as agency

brokers representing clients or as principals conducting proprietary trading (LseF98:p.72). 1997 saw

the second wave of modernisation with the introduction of SETS, the order-driven Stock Exchange

Electronic Trading Service for major companies41 (LseA98:p7ff). Unlike Denmark, Britain did not

draw up changes in stock exchange legislation. Still, LSE remains attractive to investors worldwide.

In Denmark, the stock exchange monopoly is largely uncontested, and CSE finds its major

competition outside the country. LSE meets a more fierce international competition as it is one of

the world’s most important stock exchanges. However, competition also stresses LSE on a national

level. Dealing charges were cut by 60 per cent in 1997 to counter the favourably priced Tradepoint

market (FT97e). In a move further evidencing the international appeal of UK financial services,

Tradepoint applied in October 1997 for approval by the US Securities and Exchange Commission

(SEC) to offer direct access to trading by institutional investors in the US on its market (FT97f).

Britain turned into a shareholder society42 under the Thatcher era in the 1980s, but LSE still eyes

41 SETS operates as an order book for the companies in the FTSE 100 index (LseF98:p.19). Non-FTSE 100 securitiesare traded over the SEAQ and SEATS PLUS trading systems.42 Not to be confused with Tony Blair’s stakeholder society introducing the concepts of social responsibility andinclusion (though not denying the shareholder society). See KjeN97.


market potential in small investors and launched a campaign drive in 1998 to attract small, British

investors (BØR98e).

Even in the face of the British government’s indecisive approach to that overriding concern of all

players in the European financial markets, the single currency, the City of London continued to

attract investors in 1998. At the time of writing, both Britain and Denmark are exercising their opt-

outs from the third phase of EMU, the implementation of the single currency. Danish stock

exchanges are not currently experiencing a loss of trade due to the opt-out. This may possibly be

ascribed to a confidence on the part of companies and investors, foreign and domestic, that the

Danish government and the public opinion will swing in favour of entering the single currency once

it has proven its sustainability. The British government is now also preparing the grounds for a

referendum on the subject of EMU participation (FT99g). Trading may, however, be effected in

euro on any European exchange, and a desire to delist securities from the Danish and British

exchanges is not directly related to the currency of the country. LSE is even expecting that the

position of the City may be strengthened under the single currency (BlaD98:p.12). The British

ambassador to Denmark is also of the opinion that the City of London will not suffer any adverse

influence from the British EMU opt-out.43

However, as far as the derivatives markets are concerned, London’s LIFFE lost significant trading

volume to the Frankfurt Terminbörse (FTB) during the first three quarters of 1998.44 This may, of

course, be due to increased competition as the FTB offers reduced trading costs, thus attracting

more trade. In July 1998, securities exchanges LSE and Deutsche Börse announced a strategic

alliance. This consolidation is partly a result of the liberalisation of remote membership of

exchanges introduced by the EC Investment Services Directive, but the link-up is arguably also a

defensive manoeuvre on the part of LSE to resist trading flight to the rest of Europe (FT98h). The

introduction of the single currency may be followed naturally by the establishment of a single

European exchange (FT98i). The Scandinavian securities exchanges are certainly embracing the

idea of consolidation. CSE has joined the Stockholm Stock Exchange in the development of a

common trading system to enter into function in 1999 (SØN98). The trading system involves a joint

43 The question was raised by the author of this thesis following a talk on the subject of EMU by Mr. A.P.F.Bache,British ambassador to Denmark at the Copenhagen Business School in 1998. This was the most likely answer from theAmbassador, as otherwise he would be contradicting his government.44 LIFFE sports an ambition of becoming “the world’s centre for euro derivatives trading” (LifE98:p.8)


order book and dealing system. It is envisaged that the Norwegian and Finnish stock exchanges

team up with the Danish-Swedish coalition, Nordic Exchanges A/S (NOREX), to form the first

European regional market offering the entire spectre of shares, bonds and derivative products

(BØR98b). The German-English alliance covers only blue chip shares from the two countries. The

start-up of NOREX has proved less problematic than the London-Frankfurt link-up, which in early

1999 had yet to agree on a common trading system (FT99h).

From a regulatory point of view, the cross-border marriages between European exchanges create a

new scenario which cannot be ignored. Calls have been aired for increased co-operation between

European financial regulators, for instance in the form of information exchange. Whereas a single

European securities exchange watchdog does not appear to be the prime option, some formalisation

of the co-operation between the regulators is discussed (BØR98c). EU legislation has harmonised

securities exchange law in most European countries, and harmonisation of the regulatory approach

should consequently be feasible.

3.2.2.4. Recognised Clearing Houses

Table 3.4. The RCHsAbbrev. Name FunctionLCH The London Clearing House Clearing houses are recognised and

supervised by the FSACRESTCo CrestCo Ltd.

(Source: SIBd)

Transactions on the RIEs are settled by the intermediary of the clearing houses. The London

Clearing House (LCH) guarantees and settles LIFFE, LME and IPE derivatives deals as well as

securities transactions on Tradepoint. CRESTCo clears and settles securities transactions on the

exchanges and operates a dematerialised system for securities (FsaT98:p.15). The London

Securities and Derivatives Exchange (OMLX) has a separate clearing system. The clearing house

for foreign exchange spot and forward contracts, ECHO, is not an RCH, but falls under the

supervisory aegis of the FSA.

In an unprecedented move, LCH announced in early 1999 a plan to venture into the OTC markets as

provider of central counterparty guarantees. OTC derivative trading, for instance, is not very

transparent, but the number of bargains traded, far exceeding that of listed products on UK

exchanges, facilitates clearing and settlement of OTC trading (FT99c).


3.2.3. Tower of Power or Fractured Structure – The British Recognised Bodies

The above survey of the RBs under the aegis of the SIB and now the FSA introduced the multitude

of regulatory bodies in Britain. The FSA will eventually take on responsibility for supervision of

the entire financial services sector, but the question remains whether the regulated companies and

markets will benefit from the removal of their specialist agencies. The relationship between the

FSA and the Bank of England is dealt with in section 4.2.2.1.

It has been argued that the SROs have slowly drifted away from their original purpose of providing

flexible and efficient supervision via their proximity to the members they regulate. In evidence of

the shift in regulatory approach, PIA was stripped of its responsibility for conducting the high-

profile pensions mis-selling review. The RPBs are removed from the system, and their members

will be directly regulated by the FSA.

The changes to the distribution of regulatory responsibilities in Britain are thus very wide-ranging,

and some of the causes for the shift have been outlined in this section. Below, the findings of the

above sections on the structure and responsibilities of Danish and British financial services

regulation are briefly discussed.

3.3. Danish Duplication and British Blur – Supervisory Status

The structure of regulation in Denmark and Britain has changed significantly over the last few

years. Denmark introduced the new Securities Council to undertake market supervision. Britain

decided to establish a single financial regulator.

The Danish Securities Council is by some regarded as an unnecessary new regulatory level. The

intention of the legislator was to promote the competition and effectiveness of the securities

markets. Arguably, it was necessary to create a new institution to oversee general rule-making and

formulation of principles for the securities markets, as the stock exchange monopoly was withdrawn

(BørB95b:p.94f). CSE could no longer retain the broad rule-making power which would have

applied to all new markets as well, and this power was consequently centralised. It could have been

placed within the scope of the DFSA, but this would possibly have led to even greater regulatory

confusion than is the case today. It is evident, however, that the current structure is open for

criticism, as the DFSA now, in its exercise of the powers delegated onto it by the Securities


Council, supervises CSE as well as its members, while at the same time these members are also

supervised by CSE. In Britain, the issue of the rule-making powers of the stock exchange was

discussed in 1984, when the Bank of England made it clear to LSE that it did not have jurisdiction

over anyone but its members (BlaR97:p.54).

Whereas the DFSA supervises CSE members on a par with the CSE itself, the UK SROs were in a

different position, as the SIB had no direct power to intervene in the supervision of their members.

The status of the SROs may go some way in providing the reasons for change. The activities of an

SRO may have been difficult to check, and firms belonging to different RBs may have found the

differences in regulatory practice unfair. The general public may also place greater confidence in a

large, universal regulator than small industry regulators lacking in transparency. This would explain

the taking over of the pensions mis-selling scandal by the FSA.

This section has established the status quo of the supervisory structures and regulatory

responsibilities in Denmark and Britain. In the following, the approaches to regulated markets and

business in the two countries are made the subject of a contrastive analysis.


4. Supervision and Regulation of Businesses and Markets

Danish and British regulators are fundamentally differently structured, as established in the

previous sections. There is an approximation in the tendency over the last decade to centralise

regulation. Britain has been a little slower in adapting changes to its self-regulatory system, perhaps

because “London’s pre-eminence as a financial centre owes a good deal to the absence of detailed

rules and regulations” (NorB91:p.4).

The different structures of the regulatory regimes in the two countries suggest that the best approach

to comparing the regimes will be to look at the regulation and supervision from the point of view of

the industries and markets. The below sections examine and compare the regulated business,

markets and companies in Denmark and Britain.

4.1. Regulated Business, Markets and Companies

The DFSA identifies six main areas of supervision in Denmark (FinB98).

1. Credit institutions, commercial and investment banks2. Mortgage banks3. Life assurance, insurance companies and pension funds4. Stock exchange5. Investment service companies45

6. Investment funds

The main areas of supervision in the UK prove a little more difficult to pinpoint. The scopes of the

British RBs outlined in the previous sections overlap in some areas. A sensible starting point for a

discussion of regulated business in the UK would consequently be a look at the three main areas

within financial services, namely those of investment, deposit-taking and insurance. However, this

approach to the discussion of regulated business would be too broad when taking into consideration

the RBs and the new powers of the FSA. Responsibility for banking supervision was recently

transferred to the FSA. Insurance business, which was previously supervised by the Insurance

Directorate of HM Treasury, also moved into the regulatory house of the FSA.

45 The DFSA and CseS98 have elected to translate “fondsmæglerselskab” with “investment company”. In itspublications, CSE uses the term “investment service company”, which better describes the function of such companies.The CSE translation is based on EC terminology (DidC). AndD96 uses the translation “investment broker company”,which, however, does not completely cover all functions of a “fondsmæglerselskab” (e.g. advice on investment).


With a few amendments, the arrangement of the Danish supervisory tasks applies to the British

system as well. The supervision of building societies will be dealt with in connection with

mortgage credit, and the new supervisory powers in relation to Lloyd’s fall naturally within the

discussion of the insurance industry. In order to illustrate the actual tasks facing financial regulators,

a separate section outlines a few examples of financial scandals which serve as case studies of

supervision and enforcement in practice (section 5 below).

Arguably, the above DFSA list neglects a major supervisory area, namely that of financial

conglomerates intertwining at least three of the above fields. It will be dealt with in the following

after the banking sector. Investment service companies and investment funds will be discussed

under the overall heading of investment service. Finally, the internet is rapidly becoming an issue of

concern for the regulators, and consequently one that will be discussed in this thesis.

4.2. Credit Institution, Commercial and Investment Bank Supervision

4.2.1. Credit Institution, Commercial and Investment Bank Supervision in Denmark

The responsibilities of the DFSA in respect of banking supervision are set out in Chapter 12 of

“Bank- og Sparekasseloven” (the Danish Bank and Savings Banks Act). Supervision of the banking

sector divides into two functions. The first part is an inspection performed at the place of business

of the individual institutions every three to four years. The other supervisory task is a review of

reports and accounts submitted to the regulator. Such reports include e.g. solvency and liquidity

statements, monthly balance sheets and audit reports (FinB98:p.33). The solvency statement review

is a repeated feature throughout Danish financial sector supervision as a result of the EC Capital

Adequacy Directive, which is applicable across the sector. For each bank there is one head

supervisor at the DFSA and at least one case officer (FinB97:p.61). An inspection at a bank

commences with a call for statements of large outstanding commitments. Account statements are

delivered by the central registration centre to the bank, which subsequently prepares the final

statements as well as supplementary material for inspection by the DFSA. At the time of the

inspection, the bank’s future plans and present state of affairs are discussed with the bank

management (FinB97:p.61f). The business areas and procedures of the bank are also reviewed. The

DFSA recently began conducting follow-up investigations within specific, limited areas, as

recommended by a survey of supervisory control with the Danish banking sector (see ErhF95:p.85).


4.2.2. Credit Institution, Commercial and Investment Bank Supervision in Britain

Banking supervision responsibilities were previously vested in the Bank of England, and were not

transferred to the FSA until 1998. As the Bank of England is fundamental to the function of the

financial infrastructure in the UK, it may be expected to exercise a continued influence on regulated

banks and their environment. The distribution of the powers in relation to the banks and the

financial markets in general between the Bank and the FSA will be established below before

moving on to a discussion of the FSA’s approach to banking supervision.

4.2.2.1. The Bank of England and the FSA

As mentioned in the introduction to the discussion of British financial services regulation in section

2.2.1., the Chancellor of the Exchequer in 1997 announced the new Labour government’s desire to

take away banking supervision from the Bank of England and to allow the Bank independence in

setting monetary policy.46 This move constitutes an alignment of the supervisory approach to

banking with that of Denmark, the rest of mainland Europe and the US (FT97b).

A multitude of opinions has been aired on the issue of the removal of banking supervision from the

Bank of England, including the argument that the distance between the Bank’s function as lender of

last resort and a possibly ailing banking institution reduces the speed of intervention in the form of

capital injection (FT97c). The Bank of England management of the UK banks’ accounts would also

indicate a valuable ability to discover irregularities. In Denmark, this proximity was never present.

However, the DFSA operates closely together with Danmark’s Nationalbank in case of an imminent

collapse of a bank.

It may be argued that it is sensible that the Bank of England does not hold the responsibility for

banking supervision as this might conflict with the responsibility for stability of the monetary

system. One risk is “reputational contagion” from involvement in bank rescues.47 The Bank’s

different roles in the monetary system could be confused (FT97d). In order to set out the

distribution of the responsibilities between the Bank and the FSA, two memoranda of understanding

were signed in 1997. Accordingly, the Bank monitors and is responsible for the stability of the

monetary system. It maintains a broad overview of the system as a whole and the financial system

46 Though the Bank of England Monetary Policy Committee may control short-term monetary policy movements, itoperates within the overall inflation target issued by the Chancellor of the Exchequer.47 See e.g. BasC97 or TriT95 for a discussion of the concept of contagion. See also section 4.3.1. below.


infrastructure in particular. The Bank also keeps a check on the efficiency and effectiveness of the

financial sector. In exceptional situations, the Bank may intervene in the market through a direct

official operation. The FSA, the Bank and the Treasury consult on developments and significant

cases monthly, or more frequently if called for, in a standing committee (FSAa). The Treasury

enjoys no discretion to interfere with the activities of the Bank and the FSA, but must be alerted in

case of serious problems.

In 1997, the Bank of England established a quality assurance unit aiming at discovering early signs

of a bank collapse. Encouraged by the failure to anticipate the fall of Barings48 in 1995, the Bank set

up the unit to ensure co-ordination and disseminate knowledge between the supervisory teams of

the Bank (FT97h).

4.2.2.2. Supervision of the British Banking Sector

Having thus established the relationship between the Bank of England and the FSA, the focus is

now directed to the FSA’s exercise of its regulatory powers. Financial institutions must, of course,

obtain an authorisation from the FSA in order to commence operations. Much in line with its

Danish counterpart as outlined above, the FSA gathers information from the banking institutions’

accounts and reports as well as statistical returns combined with visits to the institutions. The FSA

conducts risk-based supervision of the banks by systematically analysing the risk profile of each

institution. The analysis forms the basis for the supervision in the following period of time. The

FSA may impose on banks such sanctions as to ensure the reduction of excessive risk (FSAd).

When deciding the issues of authorisation, revocation and the exercise of sanctions, the FSA places

importance on reaching a formal decision. Under the Banking Act, the decisions of the FSA may be

reviewed in the courts or by an assigned Tribunal (FSAd).49 In connection with banking

supervision, it should briefly be mentioned that credit unions50 will join the FSA’s regulatory family

when the FSMB enters into force.

Among the tangible results of bank disasters such as the Barings, Daiwa and BCCI scandals are

international co-operation and awareness of the special regulatory problems posed by investment

48 The British merchant bank. See section, 5.2.1. below for an outline of the fall of Barings.49 In general, a Financial Services and Markets Appeals Tribunal will be set up (see section 7.3. below.)50 “Credit unions are small, mutual deposit-taking organisations which offer a relatively limited range of basic financialservices to their members who must be linked by a ‘common bond’, based on a community, an association or onemployment.” (FsaM98a:p.40)


banking. The International Organisation of Securities Commissions (IOSCO) in 1998 published a

report containing 12 principles aimed at ensuring adequate control measures in investment banks.

The report defines the lesson of the fall of Barings:

“Segregation of duties is necessary to reduce the opportunities to allow one person tobe in a position to both create and conceal errors in the normal course of business”(FT98f)

Clearly, the existing legislation and the regulators were wrongfooted by the introduction of complex

financial instruments, but the error in the Barings case was to not review the management’s skills

and the internal control procedures of the bank. Management accountability has become the new

buzzword in financial regulation spheres. The concept of corporate governance has received so

much attention in recent years that it merits separate mention when discussing financial

regulation.51 Corporate risk is weighted against the shareholders’ calls for disclosure and

accountability, which become component parts of shareholder value together with the demand for

adequate return of the investment. Corporate governance must address all these requirements in the

modern financial world (FT98j).52

4.2.3. International Trends in Banking Supervision

Against the backdrop of globalised financial services, it is clear that supranational regulation takes

on an ever wider scope. The global market is a reality for the banking world. The Basle Committee

of banking supervisors has been the international standard-setter within banking regulation.53

Regulatory harmonisation aims at facilitating competition and securing a level playing field for all

participants. If compliance with the standards is delayed locally, the consequences may be dire,

however. In 1997, the Basle Committee agreed to allow banks to use their internal value-at-risk

models as a capital adequacy measure. This means that banks can use their own models to calculate

the value they have placed at risk in the course of their operations. In the US, the new rule was

being phased in by the end of 1997, but similar changes to the EC Capital Adequacy Directive

51 When comparing corporate governance in Denmark and Britain, it should be mentioned that Danish company lawstipulates that listed companies have a two-tier governance structure with a separation of the board of directors and themanagement. UK law operates with no such distinction. The difference does not directly apply to the scope of thisthesis and will not be discussed in more detail.52 The Basle Committee on Banking Supervision recognises the importance of effective internal controls and“appropriate board and senior management oversight” in order to enhance and improve overall risk management(BasC97:p.27).53 In 1988, the Basle Committee on Banking Supervision agreed on the Capital Accord, which is more or less auniversal standard for bank capital adequacy (BasC97:p.23).


proved slow in passing (GraU97:p.16). This regulatory asymmetry could impair the earnings

potential of European banks as capital which otherwise could have been put to work lies dormant in

the banks. In 1998, the FSA announced its positive attitude towards applying such models as the

basis for assessing credit and other risks (FsaM98a:p.26).

On a national level, there is also a case for alignment of regulatory rules. As the demarcation lines

between wholesale banking, retail banking and the insurance industry are becoming blurred,

products, services and risks are not unique to the various lines of business. The UK SFA and the

FSA have agreed on joint capital adequacy requirements for credit derivative positions held by

banks and securities firms alike (FT98k).54 The move underlines the overlap between the groups of

financial services providers.

The trend in international banking regulation is moving towards standardisation of internal control

measures and management accountability in financial services companies, not least triggered by the

collapse of Barings in 1995 (GraU97p.18).

4.2.4. Banking Supervision in Denmark, Britain and the World

The tasks of the Danish and British banking supervisors and regulators are very alike, as established

above. The Bank of England enjoys a special status in Britain, as supervision was previously among

its responsibilities. Arguably, there was a case for separating the supervisory powers of the Bank

and its function as ultimate guarantor for the financial system.

Control visits and regular checks on financial statements constitute the most important supervisory

activities of the two regulators in relation to banks. The international trends in banking supervision

indicate an added focus on the internal management structure of financial institutions. There is also

a growing recognition of the individuality of banks, as they can soon use their own risk models to

assess future solvency and capital adequacy requirements.

54 Credit derivative instruments are a means of outsourcing credit risk, i.e. commissioning part of the risk involved in atransaction to a financial institution against the payment of a premium. The financial instrument can subsequently betraded. Dealing in credit derivatives is not yet used in Denmark, as Danish banks await the solution to bookkeepingproblems related to the instruments (BØR98f).


The DFSA has been criticised for its handling of a series of bank failures in the last 15 years, and

the Bank of England stunned the world by failing to arrange for a rescue of Barings Bank. The

approach to these financial disasters is discussed in section 5 below.

The following subject, financial conglomerates, has already been introduced above. Traditional

barriers in the financial sector are permeated by the centralisation of provision of financial services.

Financial conglomerates and complex groups are thus issues urgently addressed by the regulators.

4.3. Financial Groups

4.3.1. Financial Conglomerates in Denmark

In 1989-90, Danish financial services legislation was amended to allow a liberalisation of the

historic borders between the different types of financial service companies. Importantly, the 1989

EC Second Banking Directive introduced a single EC-wide authorisation procedure for credit

institutions and, for instance, allowed banks to own insurance companies.55 Danish banks do not

categorise as either commercial or investment banks in the first place, but rather as universal banks

offering the entire spectre of wholesale and retail banking, often with the addition of insurance

business and other services.

Financial conglomerates became a reality, allowing for e.g. an insurance company’s ownership of a

bank (FinT96:p.49). Three of the new Danish mortgage banks established in the 1990s are owned

by commercial banks (FinS97:p.45). In addition to opening a mortgage bank, the largest Danish

bank, Den Danske Bank, took over Danica, the largest life assurance business in Denmark in 1993

(FT98w). The collapses of insurers Hafnia and Baltica further fuelled a restructuring of the Danish

financial services sector, with banks venturing into the insurance industry (FT96a). 1998 saw the

formation of a joint holding company by Realkredit Danmark, the mortgage bank, and BG Bank, a

universal-type bank. In 1999, the universal bank Unibank and the insurance company Tryg-Baltica

announced their merger, which will result in a new giant with every second Dane among its

customers. The inter-industry marriages are likely to continue, and regulators must adapt to the

blurring of borderlines between the industries and the centralisation of the banking sector.

55 Art. 12 (2) of the Second Banking Directive, which opened up for banks’ ownership of other financial servicecompanies (EurR89b).


The activities of the different types of company are strictly separated, though. The mortgage credit

area did not see a corresponding liberalisation until 1995 due to its special position, which will be

discussed in the following section on mortgage bank supervision. The Danish government wishes to

maintain the existing legislative distinction between lenders and investors, which separates

universal and mortgage banks from the insurance and pension fund industry (BØR98d).

The DFSA aims at establishing an overview of the financial group under supervision in order to

follow the development and activities of the group in question. Among the inherent risks in a group

structure is contagion, i.e. the risk of infection from intra-group exposures to the entire group

(TriT95:p.6). Lack of transparency and a possible supervisory arbitrage are other obvious risks

posed by conglomerates seen from a supervisory point of view.

Two approaches to financial conglomerates supervision are applied by the DFSA according to the

type of group. Consolidated supervision focuses on the group as a whole in terms of e.g. solvency

and risk. In Denmark, this type of supervision applies to groups mainly consisting of commercial,

investment and mortgage banks and securities companies. It may be supplemented by solo

supervision where single companies in the group are subject to supervision. Solo-plus supervision

applies to groups which mostly include insurance companies. In this case, the companies are

supervised on an individual basis as well as on the basis of the group risk (FinT96:p.51f).

4.3.2. Complex Groups in Britain

The FSA has recognised the need for addressing the issue of financial conglomerates through a

separate supervisory function and has set up a Complex Groups division.

“A complex group is defined as one that is large with multiple regulated groupsundertaking complex and sophisticated business” (FsaT98:p.11)

Complex Groups in the UK numbered 55 in September 1998. The advantages of singling out the

conglomerates for regulatory purposes are obvious, as there are many common denominators to the

supervision of the various groups, though their regulation may be approached individually. The

concentration of specialist knowledge in one division reduces the risk of duplication in the

regulation. The mantra of flexibility is self-evident in this area because large groups may quickly

outmanoeuvre legislative efforts to keep up with developments in the financial world.


4.3.3. The US Approach to Financial Giants

In the US, a multitude of federal and state regulators supervise banks. Banking mergers have given

rise to calls for clearer definitions of the roles of the regulators and the appointment of lead

regulators for each conglomerate. US regulators look into the possibility of merging state and

federal level agencies in order to keep up with the merger and diversification trend witnessed in the

financial world. The approaches to supervising financial conglomerates and complex groups are

thus issues addressed by regulators worldwide (FT98c). In 1998, US bank giant Citicorp and

insurance titan Travelers Group merged to form Citigroup, a genuine financial supermarket offering

an unprecedented combination of investment banking, insurance and retail banking. Arguably, the

combination is known from European universal banks that venture into the insurance industry, but

the creation of the enormous group broke down regulatory barriers in the US, and it enjoys a global

influence in the three major financial services areas. Particularly the regulatory division between

insurance and banking is rapidly becoming blurred in all corners of the world (FT98d).

4.3.4. Supervision of Financial Groups in Denmark and Britain

Financial conglomerates are focalised by the regulators. The establishment of a separate division

under the FSA dealing with complex groups is not mirrored in Denmark, though. The Danish

financial services industry is dwarfed by its UK counterpart in terms of market volume and

importance, which is possibly why the DFSA is able to cope with financial conglomerates without

amending its organisation.

The supervision of financial conglomerates has been the subject of intense harmonisation efforts by

the European Community, and as a result, the Danish and British supervisory approaches in this

area do not differ significantly. The US is trying to face up to similar challenges from cross-industry

mergers.

In evidence of the increased globalisation of financial services, Denmark and Britain were parties to

the establishment of the Forum of European Securities Commissions (FESCO) in 1997. The Forum

promotes international co-operation, also in the light of the growing legislative initiatives at EU

level (FsaA98:p.35).


4.4. Mortgage Credit

4.4.1. Mortgage Bank Supervision in Denmark

The debt market in Denmark is very important. The market revolves around government and

mortgage credit bonds. In 1994, the private industry sector owned some 59 per cent of the total

bond volume in issue, whereas private individuals owned 9 per cent of the bonds. Danish bond

trading turnover is among the largest in Europe (BørA95:p.53ff). Mortgage bonds account for some

47 per cent of the total Danish bond volume in issue.56 Gilt-edged government bond turnover in

trade with non-residents is 10 times higher than mortgage credit bonds, however (FT96b). The

home loans market thus forms a crucial component part of the financial sector in Denmark, and

mortgage banks, the “big, self-owning, bond-issuing mortgage credit institutions” are an

unparalleled feature in Europe (FT98x).

Regulated by “Realkreditloven” (the Danish Mortgage Credit Act), mortgage banks perform an

essential role in the Danish financial system by issuing mortgage bonds which can be traded on the

exchanges and which help fund nearly all property deals in Denmark. In the process of authorising a

new mortgage credit institution, a complete investigation of the institution is necessary. A

“complete investigation” (“totalundersøgelse”), will be instigated some time after the

commencement of operations of the new institution in order to check its business procedures. A

“special investigation” (“specialundersøgelse”) is the routine inspection or review of selected

business areas of the mortgage bank.

Mortgage bank supervision may be further divided into three core areas:

a. Supervision of solvencyb. Supervision of lending and valuationc. Supervision of market risks57

Solvency supervision consists of a review of the mortgage banks’ own reports as well as regular

inspections, and corresponds to that of the rest of the banking sector as described above. The

mortgage institutions’ provisions for losses are estimated on the basis of spot checks (FinB96:p.60).

56 Breakdown of the Danish bond market (1994): mortgage bonds: 47 per cent; government bonds: 32 per cent; foreignbonds: 13 per cent; bonds issued by authorised “special credit institutions” in Denmark: 5 per cent; foreign bonds: 13per cent and Danish Treasury Bills: 3 per cent (BørB95a:p.48).57 Quotation, as listed in FinB96:p. 67 (English Summary).


As a supplement to the solvency supervision, lending and valuation procedures are assessed. The

objective of lending and valuation supervision is to ensure that mortgage credit is only extended

against actual security. The DFSA makes an assessment of the internal business procedures of the

mortgage banks as well as an examination of selected individual mortgages (FinB98:p.44f).

The supervision of mortgage banks focuses on ensuring that the security provided for each loan is

actual and real. Mortgage banks are in a special situation as compared to commercial and

investment banks because of the far-reaching implications of their business. Commercial and

investment banks may collapse, but the consequences of a mortgage bank failure would be

devastating, given the scope of their activities. Hence, mortgage credit legislation shares the

overriding aim of consumer protection with the rest of the banking legislation, and indeed that of

the entire financial sector (BjeT97:p.30). In 1998, 9 mortgage banks and 195 commercial and

investment banks were operating in Denmark. Mortgage bank lending totalled DKK 919.9bn

against a total commercial and investment bank lending of DKK 576.6bn (FinB98:p.42). The

Danish property market is completely dependent on the proper functioning of the mortgage credit

system, and consequently, market risk supervision ensures that the exposure to market risk remains

at a very controllable level. Commercial and investment banks can in principle assume an unlimited

market risk (FinB96:p.61).

Complaints from the DFSA’s decisions in the mortgage credit area lie to “Realkreditankenævnet”

(the Danish Mortgage Credit Appeal Board).

4.4.2. Mortgage Credit Supervision in Britain

Mortgage credit regulation, which is one of the core supervisory responsibilities of the DFSA, is not

yet covered by the UK FSA. While the FSA saw banking supervision land in its supervisory basket

already in 1997, building societies58 will only join the regulatory regime of the FSA once the FSMB

comes into force59 (FsaM98a:p.38). Today, building societies are supervised by the Building

58 Building societies are UK deposit-taking institutions which lend money for housing finance.59 The previous regulator, the Building Societies Commission, is to be rolled into the FSA.


Societies Commission. It is envisaged that the prudential supervision60 of retail banks and building

societies is harmonised, as the services of these types of institution overlap substantially (ibid:p.39).

The proposed FSMB allows for subsequent inclusion of mortgage regulation among the FSA’s

responsibilities (FT98m). Mortgage lending is currently subject to the control of the Council of

Mortgage Lenders which publishes a Code of Conduct regulating the mortgage market

(FsaM98a:p.12). If the Code fails to adequately regulate mortgage lending, it is envisaged that the

Council surrenders its supervisory status to the FSA (HMT98a:p.14).

4.4.3. Mortgage Credit in Denmark and Britain

The special position enjoyed by mortgage banks in Denmark finds no counterpart in Britain.

Building societies have entered the territory of banks, and mortgage lending is regulated by an

independent entity.

In Denmark, however, mortgages are essential to the functioning of the property market and the

area receives the supervisory attention to match its importance. The supervisory procedures

identified for banking supervision is paired with supervision of the mortgage banks’ lending and

valuation. Mortgage banks can only be subjected to a very limited market risk, and the room for

manoeuvre is quite restricted.

4.5. Insurance Supervision

4.5.1. Insurance Supervision in Denmark

Since 1988, the insurance and life assurance industry in Denmark has been answerable to the

DFSA. ”Lov om Forsikringsvirksomhed” (the Danish Insurance Act) delegates on the DFSA the

authority for supervision of insurance and life assurance businesses and the ensuing powers in

respect of investigation etc. The DFSA scrutinises accounts and statements submitted by the

insurance companies and performs on-site examinations much in line with the procedure for banks

and other financial institutions (FinB98:p.65). The examinations cover checks of actuarial reports,

board meeting and audit minutes, business procedures and internal routines (FinB97:p.94).

60 “Prudential supervision” covers the supervision of compliance with capital cushion requirements (“prudential ratios”for capital), and the term applies to the banking sector, building societies and the insurance business. The term is foundin the EC Second Banking Directive, Art. 13. (The Danish equivalent is “forsigtighedstilsyn” (EurR89b))


4.5.2. Insurance Supervision in Britain

One of the institutions to roll into the FSA is the Insurance Directorate, which previously resided

with HM Treasury. The Insurance Directorate was responsible for supervision insurance business,

including the unique institution of Lloyd’s, which, however, regulated its own market to a great

extent. While the traditional characteristics of this insurance market are of little relevance to this

thesis, the proposed recast of the regulation of Lloyd’s under the FSMB demonstrates the impact of

the present financial regulation reform in Britain. Lloyd’s was first regulated by formal legislation

in 1871, and the most recent Lloyd’s Act dates from 1982 (CorA98:p.4-5). Historically, regulation

was primarily an internal issue attended to by the Council of Lloyd’s,61 but 1997 saw the launch of

a review of the regulatory structure of Lloyd’s (LloM98). In early 1998, the decision to include the

regulation of Lloyd’s in the regulatory portfolio of the FSA was announced, and the FSMB

consequently contains provisions as to the accountability of Lloyd’s to the FSA.62 The FSA will

assume responsibility for authorising members and holds extensive powers of intervention in the

market, whereas Lloyd’s is expected to oversee the daily supervision of its insurance market

(FT98y).

The proposed new regulatory structure of Lloyd’s finds its origin in a 1995 Treasury report

condemning the private club and self-regulatory nature of the insurer (FT97j).63 The

encompassment of Lloyd’s by FSA’s regulatory tentacles thus fills out a supervisory void in the

British financial world, and particularly so as the competence of the Insurance Directorate over

Lloyd’s is far surpassed by that of the FSA (FT98z). Hence, the criticism following in the wake of

the creation and definition of the FSA is hardly applicable to this part of the regulator’s activities.

4.5.3. Insurance Supervision in Denmark and Britain

The special institution of Lloyd’s has been given special attention above as its “surrender” to the

FSA constitutes one of the major changes in British financial regulation. The insurance industry as

such is governed by EC Directives and the approaches of the two countries do not differ

61 The Treasury undertook the supervision of the solvency of the “Names” (individual members) and the entity of theLloyd’s insurance market, however (HMT98a:p.46).62 See Part XVI of the FSMB, which outlines specific rules and names the parts of the institution which will be subjectto the general provisions on authorisation and supervision contained in the general part of the Bill.63 Self-regulation at Lloyd’s is criticised for failing to perform adequate checks of the financial robustness of insurers inthe 1980s (FT97k). Poor regulation entailed heavy losses and personal bankruptcy for many individual membersfollowing losses on natural disasters and man-made catastrophes in the period between 1988 and 1992 (CorA98:p.8).


significantly. In Britain, the industry will be regulated by the FSA, which may pave the way for

improved supervision of financial supermarkets offering banking and insurance products alike.

4.6. Stock Exchange Supervision

4.6.1. Stock Exchange Supervision in Denmark

The stock exchange supervisory scope include the operation of stock exchanges, AMPs, securities

brokerage, money market brokerage and clearing and registration business (FinB98:p.76). In

addition to its company supervision, the DFSA undertakes the supervision of these markets in its

function as secretariat of the Securities Council (as discussed in section 2.4.1.1.).

CSE is a regulator and supervisor in its own respect. The powers and responsibilities of the Danish

stock exchanges and AMPs in respect of their members were discussed above in section 3.1.1. The

markets are subject to control by the DFSA and the Danish Securities Council through the rather

complicated exercise of the authority of the Council. The function of CSE and the AMP as

regulated entities is consequently already discussed above for reasons of coherence.

4.6.2. Recognised Investment Exchanges in Britain

The concept of RIEs and their powers over member firms are issues addressed in the discussion of

British RBs in section 3.2.2.3. The relationship between the FSA and the RIEs is thus also covered

in the same section. The FSA maintains the London Code of Conduct within the scope of which the

RIEs operate.

This section hence moves on to the supervision of investment services in Denmark and Britain.

4.7. Investment Service Supervision

4.7.1. Investment Service Supervision in Denmark

The main securities and stock exchange legislation is “Værdipapirhandelsloven” (the Danish

Securities Trading Act). Investment service companies are, however, regulated by

“Fondsmæglerselskabsloven” (the Danish Investment Service Companies Act). Investment service

companies (including securities brokerage firms) offer services related to trade in and provision of


securities as well as portfolio management and underwriting of issues (as stipulated in the EC

Investment Service Directive) (BørB95:p.147). The term “investeringsservice” (investment service)

is replaced by “tjenesteydelser i forbindelse med værdipapirhandel” (services in connection with

securities trading) in the act (Fmsl:S.1(1)), so as not to confuse the terminology with the Securities

Trading Act implemented at the same time (PedK98:p.10934).

The operation of investment service companies is subject to authorisation by the DFSA

(Fmsl.S.5(1)). As is the case with the banking sector, supervision is based on reports filed by the

regulated institutions and on inspections undertaken by the DFSA (FinB98:p.82). The primary

supervisory objectives so far have been of a temporary nature, as the DFSA has supervised the

implementation of the changes imposed by law on the companies, i.e. structural and ownership

changes and the formulation of internal rules on inside information etc. (FinB98:p.83). Many

companies have not been able to meet the rigorous statutory demands placed on companies wishing

to offer investment services to the public.

Another function of the DFSA is the supervision of investment funds. In 1998, the legislation

governing investment funds was extended to cover special funds with various objectives ranging

from business development to fund placement. The DFSA receives asset statements and annual

accounts from investment funds and special funds and may visit the funds at regular inspections.

4.7.2. Investment Service Supervision in Britain

The SROs share between them the supervision and regulation of firms offering investment service

in the UK. They are no longer responsible for authorising such activities, as this is now a function

of the FSA, which will eventually assume all the responsibilities of the SROs. The activities of the

SROs are set out in section 3.2.2.1. on the distribution of regulatory powers in Britain.

UK investment funds, unit trusts, open-ended investment schemes (OEICS), unauthorised open-

ended investment schemes (pooled investment companies) (PUNCS) and investment management

in general also fall under the regulatory scope of the SROs and the FSA. The supervisor may extend

or narrow the range of products which such schemes may promote (HMT98a:p.31f). The regulation

of such companies is “aimed at compliance and administration staff who need to have an


understanding of the standards expected by the FSA” (FSAf). The broad principles issued by the

FSA hence regulate the activities of investment companies.

4.7.3. Investment Service Supervision in Denmark and Britain

The concept of investment service firms is a novelty on the Danish financial scene. Supervision of

such companies does not deviate substantially from that of the banking sector, and the services of

the two types of financial institution overlap in many areas. The EC Investment Service Directive is

implemented in Danish law and would appear to provide a sound foundation for the regulation of

investment service activities. However, the creation of investment service firms may have confused

the ordinary consumer, not least as the Danish terminology in the area is not entirely clear.64

The FSA applies a very flexible approach to the supervision of investment service activities. Some

types of company belong to designated SROs, whereas others mainly are regulated by the general

FSA Principles.

The new Danish investment service firms and the British OEICS and PUNCS demonstrate the

development within the investment industry. This development places great requirements on the

regulators. The British flexibility arguably enjoys the greater viability in this area.

4.8. Innovative Investment on the Internet

”Blur” is a term often connected with the barriers, distinctions and borders traditionally separating

financial service providers offering different products and incurring different risks. The

centralisation of financial services has been highlighted throughout this thesis as the overall

motivation for reforming financial regulation. However, the emergence of new technology is

keeping financial regulators worldwide short of breath, too. The IT revolution threatens to invade

the domain of financial services and has already done so in the most computer literate parts of the

world. The US, of course, is leading the way in offering securities trading via the internet.

Competition receives a boost, and trading prices plummet due to the low operating costs of internet

brokerage (FT99d), but regulators must have a hard time defining an approach to this new market.

One web site reportedly services more than 2 million investors (FT99e), whereas another reached

64 Not many Danish consumers would be able to tell the distinction between the new “fondsmæglerselskab” (aninvestment service firm), an old “børsmæglerselskab” (securities brokerage dealer) and the new concepts of“værdipapirhandler” (securities trader) and “værdipapirmægler” (inter-dealer-broker).


an average of 153,000 online deals a day in January 1999 (FT99f). The massive trading potential

offered by online services heralds a new era for financial regulation. Powered by computer

technology, investment services are taken closer to the investor every day. The FSA, eager to fulfil

its statutory consumer education objective, meets internet investors on their own ground by

promoting investor awareness from its web site (http://www.fsa.gov.uk/alerts.htm/).

Another aspect of the technology challenge facing financial regulators is the Y2K computer “bug.”

Banks and other providers of financial services belong to the group which is most likely to

experience year 2000 computer compatibility problems. As the problem exists in all countries, the

Basle Committee on Banking Supervision addressed the issue for the first time in 1997 with a list of

recommendations in order to prepare computer-dependent systems for the turn of the century

(BasT97). The FSA pursues an active information policy in order to ensure that adequate measures

are initiated by the financial services industry (FT98-1). Its discretionary powers under the FSA8665

permits the imposition of the ultimate disciplinary action of closing down a financial institution

through the suspension of its authorisation if it is deemed in contravention with the statements of

principle.66

4.9. Regulated Entities in Denmark and Britain

The Danish and British financial sectors are supervised along very similar lines. Banking is possibly

the area which has been most influenced by European Community Directives and international

standards. Investment exchanges in both countries regulate their own members and are subject to

supervision by the main financial services regulators. Mortgage credit receives special attention in

Denmark, while in Britain it is almost comparable to the domain of banks. Finally, the continuing

development within the investment industry presents challenges for the regulators.

The discussion of regulation in the two countries is not complete without a look at what happens

when regulated companies collapse or fail to comply with the regulation. The following section

presents two case studies for each country.

65 Until replaced by the FSMB, which was not passed at the time of writing, FSA86 governs the functions of the FSA.66 FSA86 s.47A (Statements of principle) sets out the specific disciplinary actions available to the regulator wherebreaches of the Statements are established.


5. Financial Scandals – Reality of Regulation

Financial regulation in Denmark and Britain is characterised by a flexible legislative framework.

The above discussions of the resources and remedies available to the financial regulators in the two

countries have delved into the theoretical side of the regulators’ approaches. Arguably, the full

picture of the regulators is only revealed through an investigation of their actions in practice. This

section aims at examining four financial scandals that have attracted headlines in Denmark and

Britain. Each scandal encompasses enough aspects of financial regulation to justify treatment in

individual theses, which is why only a broad outline of the cause, effect and ensuing remedies of the

scandals is offered here. Highlighting the regulator’s role, the cases, causes and cures discussed in

this section are thus merely snapshots of financial regulation in practice rather than an endeavour to

provide a balance to the more detailed sections on regulatory organisation and legislative approach.

In addition to the national financial disasters, international crises and failures in financial

institutions influence regulation in several countries. The spectacular collapse of Bank of Credit and

Commerce International (BCCI) was the direct inspiration for the introduction of an EC Directive

which tightened the rules for authorisation and supervision of credit institutions and investment

service providers.67 The BCCI collapse has been termed ”the world’s biggest fraud,” and the

liquidators of the bank are still trying to piece together the scattered remains of the bank’s capital

for distribution to distressed creditors (FT98-2). The fall of the Maxwell empire, notoriously

remembered for the disappearance of financial magnate Robert Maxwell as the immense

defrauding, not least of pension holders, was unveiled also spread shock waves in many corners of

the financial world.

In the following, the focus will be on the national challenges to regulators witnessed over the last

decade. In the UK, the case of Barings Bank extends beyond national borders, but the Bank of

England was responsible for supervision of the bank. The Personal Pensions Mis-Selling scandal

occurred within the supervisory scope of PIA, the SRO. PIA’s handling of the scandal is allegedly

one of the reasons for rolling the SROs into one regulator. The DFSA has been involved in two

high-profile rescue operations. The Faroese bank scandal left the relationship between Denmark and

67 The so-called BCCI Directive (95/26) (PedK98:p.10933 and DueK96:p.423 and p.436).


the Faroe Islands scarred, and the Hafnia insurance company rescue was unprecedented in the

Danish financial services industry. Both cases gave rise to intense criticism of the DFSA.

5.1. Financial Scandals in Denmark – Cases and Cures

The DFSA has been involved in a number of bank reorganisations in the last fifteen years (see e.g.

TvæR95:p.78ff). Over the last decade, two major financial scandals stand out, however. The Hafnia

bankruptcy and the Faroe Islands bank scandal have been widely reported in the Danish press, and

the DFSA has been attacked for exceeding its brief. The approach of the DFSA to institutions in

crisis forms the subject of a committee investigation, due to be finished by 2000 (BØR99a).

5.1.1. Insured Insolvency – The Hafnia Scandal

Shortly before the Hafnia insurance and life assurance company went bankrupt68 in 1992, the

company issued shares in the amount of DKK 1.9bn in an attempt to continue its operations. The

DFSA was in the process of investigating the accounts of the company at the time of the issuance.

The investigation led to a suspension of payments69 by Hafnia only a few weeks after investors had

infused the capital into the company, meaning that Hafnia was in effect insolvent when the

prospectus was presented. Den Danske Bank (DDB), Denmark’s largest universal-type bank, which

drew up the prospectus, may have been aware of the imminent insolvency. The DFSA is criticised

for failing to consider the interests of the investors in Hafnia and instead placing weight on the

insurance and assurance holders and DDB (JP98a). The problem, seen in relation to the legislation

governing financial regulation, is the wide discretionary powers with which the DFSA are endowed.

The regulator arguably bet on the wrong horse in the period leading up the drawing up of the

prospectus. Investors could have been spared for the loss of their contributed capital if the threat of

insolvency had been disclosed. The Securities Council had not yet been conceived, and it would

appear that the distribution of responsibilities between CSE and the DFSA, at least as regards

disclosure in prospectuses, was blurred at the time.70 In conclusion, the powers of the regulators

may have been abused. Though required by law to perform supervision of the financial institutions

and intervene in case of irregularities, the DFSA also enjoys discretion in deciding when to step in.

68 Please note the Danish insolvency law does not distinguish between personal and corporate insolvencies and that theterm “bankruptcy” consequently is applied to individuals and companies alike in this thesis.69 Suspension of payments is approximately the Danish insolvency law counterpart of the US Chapter 11 procedureunder which companies in financial distress are allowed operational breathing space in an attempt to reorganise.70 JP98b reports that the disclosure of information in connection with issuance of shares would be subject to discussionbetween the DFSA and CSE.


This discretion may be reasonable when rightly applied, but the consequences of a wrong decision

are, on the other hand, devastating. The quandary of whether to consider the interests of the ailing

institution and its depositors/policy-holders or those of the investors has been referred to as the

”Mølgaard Dilemma” after the then head of the DFSA (BØR98g).

5.1.2. Funding the Faroes – The Faroe Islands Banking Scandal

In an almost simultaneous incident to the Hafnia scandal, the DFSA was attacked on another front

for failing to meet its obligations. Interestingly, DDB was involved in the affair once more.71 The

case concerns two Faroe Islands banks;72 Føroya Banki, in which DDB held the majority of shares,

and Sjóvinnubankin. In a 1992 routine inspection, the DFSA discovered that the banks needed a

capital injection to meet solvency requirements (GrøF98:p.18). One of the reasons was that the

banks had engaged in excessive lending to the Faroese fishing industry, which saw a sharp decline

in earnings and defaulted on the loans. A loan totalling DKK 500m was extended by the Danish

government and invested in Sjóvinnubankin through ”Finansieringsfonden af 1992,” a financing

foundation. DDB invested DKK 322m in Føroya Banki. Sjóvinnubankin was later granted a further

loan by the government. DDB entered into a share swap agreement with the government and the

Faroese financing foundation under which the bank received a minority stake in Sjóvinnubankin in

trade for its share majority in Føroya Banki. The DFSA participated at the negotiation of the

agreement. A further loan of DKK 1bn was channelled to Sjóvinnubankin, and it was agreed to

merge the two banks. Inspections at the banks revealed a further need for capital, and another DKK

1.9bn reached the banks from the Danish government (GrøF98:p.19). The role of the DFSA and the

share swap agreement with DDB are the pivotal points of the public debate and the subjects of an

investigation which materialised in a report exceeding 2,500 pages in January 1998. The share swap

left the Faroese foundation with the majority shareholding in what proved to be an insolvent bank.

The question is whether DDB exploited its position as the country’s largest bank to pressure the

government and the Faroes into accepting the share swap, and also whether the bank failed to

disclose the capital needs of Føroya Banki. Further, it is crucial whether the DFSA was aware of the

insolvency and whether it gave in to pressure from the government to allow the swap (JP98c). The

Danish government paid a compensation amounting to DKK 1.5bn to the Faroe Islands in June

1998 (BØR98h).

71 Being Denmark’s largest bank, DDB may assume a natural responsibility in reorganisations of financial institutions.72 The Faeroes form part of the Kingdom of Denmark, though they enjoy extensive home rule. The Islands elect twodelegates to the Folketing, the Danish parliament with 179 delegates.


5.1.3. Insolvency Iterated – Pragmatics of Regulation in Denmark

The Hafnia and Faroe scandals share a number of features. The obvious point is whether the DFSA

places political considerations above its responsibility towards investors and shareholders

(POL98b). The DFSA chose to inform Føroya Banki about the crisis in Sjóvinnubankin, though

such information is normally confidential (ibid.). In fact, the DFSA allegedly set aside most normal

rules and procedures in order to solve the problem at hand (JP98d). The wide discretion available to

the DFSA has been the major point of criticism (BØR98i). DDB plays an equally criticised role in

both scandals, but this may be ascribable to the infrastructure maintenance functions it has assumed

in the Danish economy.

5.2. Financial Scandals in Britain – Recovery and Remedies

The fall of Barings stunned the professional market participant and the individual saver and investor

alike. The collapse of the giant left an immense impression with regulators worldwide as has

already been outlined in the above sections on British banking supervision and corporate

governance. The pensions mis-selling scandal has an equally great impact on individuals, as many

small investors felt the direct impact of the incorrect advice offered by pensions companies.

5.2.1. Lessons from Leeson – The Fall of Barings

Though the Bank of England functions as the lender of last resort to the UK banking system, it

chose not to intervene in the Barings bank collapse. British banks – and the public system - were

not prepared to place funds at the disposal for a rescue operation, as the losses on outstanding

derivatives contracts were not computable at the time (HMT95). Barings was brought down by

Nick Leeson, an enthusiastic settlements clerk, who rose to the position as general manager of the

Barings futures division in Singapore. In an account of the events leading to the fall of Barings

(LeeB96), Nick Leeson explains that his rapid promotion meant that he remained in charge of back

office settlements while at the same time running front office activities, i.e., dealing in the market.

He was in effect in charge of controlling his own activities. His knowledge of the market was

unprecedented, and the nature of the products he dealt in was difficult to understand even for the

management and the audit department of Barings. At one point his dealing alone contributed 20 per

cent to the bank’s bottomline.


5.2.2. Adverse Advice – The Pensions Mis-Selling Scandal

The SROs are eventually to be rolled in the single UK financial services regulator. One high-profile

SRO issue addressed by the FSA already now is the pensions mis-selling scandal.

Companies involved in the scandal advised investors to purchase unprofitable personal pensions

and to opt out of company pension schemes. Following the advice given in the period between 1988

and 1994, investors lost out and compensation claims were presented on behalf of individual

investors by PIA (FT97i). In 1998, PIA fined one company £600,000 for failing to comply with

instructions to instigate a comprehensive review of its pensions marketing procedures (FT98g).

Firms which sold personal pensions in the period must contact the investors and ask whether they

want a review of their pensions, as joining employer’s pension schemes would usually have been a

better choice for the investor. If that is deemed to be the case, the firm is liable to pay a

compensation to the investor. By the end of 1998, some 250 firms had been fined by the PIA

(FT98l). At the expense of the investment industry, the FSA started contacting the general public in

January 1999 through television and newspaper advertisements (FSAe).

Arguably, the intense profiling of the regulator through the media serves the twin purpose of

informing the public about the existence of the new financial services watchdog and of warning the

financial world about the strength, stamina and government backing of the new regulator. The

pensions review is the first test of the abilities of the FSA and so far, the industry is learning some

very expensive lessons about the regulator’s power and willingness to enforce its authority.

5.2.3. Financial Fraud – Pragmatics of Regulation in Britain

The two British financial scandals outlined in this section are equally standard-setting within their

respective areas of banking/investment and pensions. The fall of Barings even reaches beyond the

banking and investment industries, as its impact on the corporate world is still echoing. The final

result of Leeson’s rogue trading may well influence supranational legislation in line with the

socalled BCCI Directive. The pensions mis-selling scandal involves financial regulators in a more

direct manner. The FSA may use the incident to profile itself, but on a broader scale, all investment

advisers are affected by the pensions review. FSA’s Principles for Business, item 7, obliges

regulated firms to “Keep Faith with Customers Entitled to Rely on the Firm’s Judgment” (cf. Table

2.1. above). This principle would appear to be enforced to the letter.


5.3. Reality of Regulation in Denmark and Britain

The 1990s have offered massive challenges for financial regulators. All four scandals discussed

above are notable for their size and impact. The collapse of Barings Bank stands out as the disaster

with the largest international implications and the one involving most finances. The pensions mis-

selling affair, on the other hand, is still evolving and is the one involving most regulatory action

because of the many companies comprised by the review.

In Denmark, the scandals fail to assume the financial magnitude of their British counterparts,

though they easily compare in relative terms as concerns influence on the economy. The Danish

regulatory intervention in the case of Hafnia and the Faroe Islands reveals a pragmatic approach to

the handling of ailing financial institutions. Arguably, the DFSA, the Danish central bank and the

government apparently share the idea that the end justifies the means in a crisis situation. It has

been established that the DFSA has set aside dogmatic rules and demonstrated a pragmatic attitude

to the situations discussed above. The DFSA may have seen the choice of primary interest groups –

that between shareholders and depositors/policyholders in ailing financial businesses - as a

quandary. The obvious question arising out of this situation is whether this choice should not be

more clearly addressed by Danish financial law. With the FSMB, Britain has fronted consumer

protection as the prime priority of financial regulation (see section 6.2. below). It may be argued

that the choice of primary interest groups in financial regulation should be a political decision and

not one which is left to the discretion of the market and business regulators.

The fact that Britain chose not to launch a rescue operation for Barings Bank is probably more a

question of ability than one of political desire. Barings does not constitute a prototypical example of

the regulatory approach to financial institutions in crisis. The funding required to keep the bank

afloat was not present. However, it is interesting that a bank, which arguably could be seen as

belonging in the “too big to fail” category is actually permitted to fail without further ado.

The pensions mis-selling affair afflicts ordinary policyholders and investors and is consequently

less complicated for the regulators to handle. People were lured into risky and poorly yielding

investments by devious firms. This is a gratifying scenario for a regulator, as the lines are clearly

drawn up between the parties, and as no political aims interfere with that of consumer protection.


In conclusion, the four cases outlined in this little survey of recent financial scandals in Denmark

and Britain do not provide sufficient material for an exhaustive discussion of the regulators’

approaches to crises and scandals in the regulated industries. Interestingly, the Danish cases both

involves criticism of the DFSA, perhaps because its mandate is not clearly enough defined by

existing legislation. The British cases are very different, but both generated shock waves which

have not yet settled and which may be expected to materialise in the form of regulation of corporate

management and focus on the marketing practices and standards of firms offering investment

services to the general public.

The question of priorities in financial regulation will be further developed on in the following by

means of a discussion of consumer versus business considerations, including consumer

compensation schemes, in Denmark and Britain.


6. Objectives of Financial Regulation

This section aims at outlining key concepts of financial regulation in order to complement the above

discussion of the approaches to financial regulation in Denmark and Britain. First, the duality in

regulation caused by the costs and benefits of (self-funded) regulation will be discussed. The second

part of this section compares the approaches to consumer protection in Denmark and Britain. The

retail aspect of financial service regulation is inseparable from the existence of investor

compensation schemes, which forms the subject of the discussion in the third part of this section.

6.1. Systemic Considerations – Wholesale Financial Services Regulation

The approach to the handling of ailing financial institutions will always reflect a balancing act

between the desire to treat the institutions as ordinary companies and the desire to protect the means

of the customers and the function of the financial system as a whole.73

On the one hand, financial institutions share with other businesses the inherent risks contained in

the cyclical, yet unpredictable, nature of the market economy which may lead to failure in the worst

possible case scenario. On the other hand, the institutions constitute an all-important building block

in modern society. In order for a country and its citizens to uphold society, at least in the developed

countries, there must be an organised and trustworthy financial infrastructure. If the financial

system went unregulated or without adequate supervision of the regulation, there would be no faith

in the institutions and the economy would collapse from the lack of control with the flow of funds.

Closely related to the objective of maintaining a properly functioning financial system is the desire

to protect individual savers, investors, pension contributors and insurance holders from any unfair

losses of their funds.

The above constituting an introduction in general terms of the considerations deciding a country’s

approach to regulation, an example of a more academic point of view is presented in the following

in the form of a brief discussion of public disclosure and bank failures. The scope and extent of this

73 This introductory discussion of the need for financial regulation is influenced by a report by the Danish Ministry forEconomic Affairs on the handling of bank failures (ØkoH97), though not indicative of the views expressed in the study.The ministerial report is an example of the Danish approach to reviewing financial regulation. It is not comparable tothe 1995 Stock Exchange Committee report, as no specific task was commissioned on the bank failure project group bythe Minister of Economic Affairs.


thesis does not allow for more than a cursory introduction to the intricate studies – and mathematics

- of financial regulation. The below discussion of disclosure and exposure is thus merely an

example of the regulatory considerations of the legislators.

A recent (1998) study74 examines the relationship between public disclosure requirements and

banks’ risk taking. Disclosure75 dampens risk taking, but disclosure will only work in a system with

a low inherent systemic risk. The study places as one extreme, when distinguishing between risk

levels, developing countries with high risk due to a volatile economy (CorP98:p.2). In such an

environment, it is argued, disclosure would increase rather than reduce risk because of deposit rate

flexibility which would lead to high rates and thus impose costs on the banks. These added costs

would be comparable to deposit insurance premiums, i.e. reduced return to the depositor, which is

seen as the alternative to disclosure. Hence one approach may be as good as the other in developing

countries, since the benefits are balanced out by the costs (CorP98:p.16-18).

Instead of taking as its point of departure developing countries, the study could, with a few

modifications, have looked at the different exposures to economic cycles in various countries.

While it would appear that Denmark was less exposed to economic cycles, though subject to

stagnation in 1987-93 (TvæR95:p.7), Sweden and Norway suffered much from the crisis, possibly

because of less saving for rainy days on the part of the banking sector (FT96a). Retrospectively

considered, the financial sectors in Sweden and Norway were the equivalent of the above study’s

developing countries, and if the trail of thought is further transferred, added disclosure requirements

in these countries would not lead to added stability. In Denmark, disclosure requirements would

consequently stand better chances of enhancing bank failure protection, as the Danish economy is

the more ”developed” in terms of exposure to international economic cycles.

The Danish Stock Exchange Committee, which reviewed Danish securities legislation in 1995, were

split on the subject of transparency in the securities market by means of disclosure

(BørB95bp.38ff). The Committee recommended, however, an increase of disclosure on the part of

issuers and other market participants (BørB95ap.19f).

74 A Center for Economic Policy Research Discussion Paper introducing a mathematical model computing the variousaspects of disclosure, risk taking and depositor behaviour (CorP98).75 In this context, disclosure is defined as information about investments, large commitments and the like communicatedto the general public.


Having delved into one single regulatory issue and proved the relevance of the application of

models in financial regulation, this section attempted to give an impression of the complex

considerations involved in wholesale financial services regulation. Consumer protection is a more

tangible facet of financial regulation, as it is directly related to individual investors.

6.2. Consumer Protection – Retail Financial Services Regulation

The individual bank depositor or borrower would like to be secured in the best manner possible

against a collapse of the institution. The bank is interested in appearing as secure a business partner

as possible in order to appeal to customers, but this consideration must be measured against the cost

of regulation which the regulated firms usually have to bear themselves (see e.g. FsaF97:p.10).

Financial institutions experience this duality in their relationship with the regulators. As far as

consumers are concerned, there should be an incentive for them to behave in a responsible manner

and not just rely on various investor or deposit guarantee schemes to help them get their money

back76 (inter alia ØkoH97:p.39). A bank which engages in high risk - high reward investment might

offer a high level of interest rates in order to attract business (CorP98). Consumers should then be

trained in so far as possible to assess the risks involved in placing their money with the institution.

The focus on educating the investor is clearly visible on the UK FSA internet site, whereas the

Danish FSA internet site77 is less informative in most respects. Also, the 1998 British FSMB,

(Cl.5(1) and (2))78 prioritises protection of the consumers whilst acknowledging that

! the level of risk varies with the type of investment,! consumers are not a homogenous group in terms of investment experience and knowledge,! consumers are responsible for their decisions

Regulation of financial services providers may be considered a “top-down” approach to regulation,

whereas promotion of consumer awareness can be seen as “bottom-up” regulation, as the FSA is

seeking to improve the ability of the consumer to “make sound financial decisions”

(FsaM98a:p.45). The establishment of a Consumer Education Forum comprising the interests of

consumers and the financial services industry alike is among the proposals for meeting the financial

76 For systemic reasons, the ordinary saver would have to continue to enjoy a high level of protection, though.77 http://www.fsa.gov.uk/ and http://www.ftnet.dk/, respectively. The UK site promotes consumer awareness in theareas of pensions (in the light of the pensions mis-selling scandal), investment via the internet and the level ofprotection for differing investments and services, whereas the Danish site rather targets the regulated firms.78 Consumer education is focalised in the FSMB: “The public awareness objective is: promoting public understandingof the financial system” Clause 4 (1).


literacy objective of the FSA (FsaP98:p.18). The FSA has also announced its intention to create a

consumer panel in order to better understand consumers’ needs, problems experienced by

consumers and to inform consumers of the activities of the FSA (FsaC97a:p.5f). FSA looks to the

PIA Consumer Panel, set up in 1994, as a role model for involving consumers in its work, and the

supervisor envisages an advisory role on policy development for the proposed panel, which is also

to review FSA policies in relation to consumers as well as present suggestions of its own initiative

(FsaC97a:p.7). Involvement of participants in the wholesale market is also regarded essential for the

function of the FSA. The regulator is thus interested in setting up a practitioner panel which would

enhance the quality of the regulation79 (FsaP97:p.5).

No Danish financial services legislation defines consumer protection as an overall objective,80 and it

would appear that the approach to financial services regulation differs in the two countries in this

area. The Danish Securities Trading Act places in S.5 (2) a requirement on dealers in securities to

show competence and loyalty in their relationship to their customers; a demand that hardly bears

comparison with the well-defined UK statutory ambition of consumer protection. The consumer

considerations expressed by, for instance, the Stock Exchange Committee in BørB95a,81 BørB95b

and ØkoH97 can arguably be regarded as preliminary steps in the direction of increased consumer

focus. Whereas the Committee argued that the gap between Denmark and the rest of the world was

narrowing at the time (1995) in terms of technical ability and regulation, which was the reason for a

review of the functions of the stock exchange and the underlying regulation (BørB95a:p.45), it

would appear that Denmark is now lacking behind in the “soft” area of increased awareness of the

need for consumer education and responsibility. The framework legislation approach effectively

chosen by Denmark on the recommendation of the Stock Exchange Committee could easily have

incorporated the objective of consumer protection as was the case in Britain. In Denmark, the focus

would appear to be on depositor and investor guarantee schemes, which, on the other hand, exist in

Britain as well.

UK financial regulation is directed at retail financial services providers to a higher degree than in

Denmark. This may be ascribable to a number of factors, but it would be fair to assume that the

79 This is called “industry training” (vs. “consumer education”) (FsaM98a:p.47).80 Note, however, that the Danish Securities Trading Act imposes on the stock exchanges an obligation to issue rules tothe effect of promoting investor protection through a code of ethics and transparency (S.19(1)).81 One of the general objectives identified by the Stock Exchange Committee for the reform of Danish securitieslegislation was adequate investor protection in alignment with that of foreign markets (BørB95a:p.26).


Thatcherite shareholder mentality prompted by the sale of public utilities at favourable prices to the

general public in the 1980s resulted in a need for increased investor protection. The retail market for

financial services grew and the emergence of a novice investor culture led in its wake attractive

prospects for less honest investment business providers and a greater risk that firms became

insolvent and unable to meet their obligations towards the investors.

The authors of a study of investors’ attitude to the 1995 Danish Stock Exchange reform in Denmark

asked investors whether they thought investor protection had improved as a result of the reform

(SveB97:p.92). A convincing 67 per cent found that investor protection had not improved, whereas

27 per cent were of the opposite opinion. Importantly, the question was not whether investor

protection was at an acceptable, or satisfactory, level, but rather whether there was an improvement.

However, the investors asked were corporate or other large investors and thus not comparable to the

individual investors targeted by the UK FSA.

6.3. Consumer Compensation

Consumer compensation schemes can be regarded as a regulatory tool with the primary function of

ensuring the confidence in and the stability of the financial sector (RasB96:p.50). The European

Union has contributed actively to the development of compensation arrangements by setting out

minimum requirements for compensation schemes (FsaC97b:p.13). Both the Danish and the British

compensation arrangements top the minimum requirements of the 1994 Deposit Guarantee

Directive and the 1997 Investor Compensation Directive, however. There is no corresponding

Directive covering compensation of insurance business (FsaC97b:p.14).

6.3.1. UK Investor Compensation

Under the proposed FSMB, the five existing main financial services compensation arrangements as

well as some individual schemes will be rolled into a single Financial Services and Markets

Compensation Scheme (HMT98a:p.34).


Table 6.1. UK Compensation SchemesCompensation Arrangement Responsibility Maximum CoverBuilding Societies Investor ProtectionScheme

Deposit-taking business (buildingsocieties

90 % of claim, up to £ 18,000 (ECU20,000)

Deposit Protection Scheme Deposit-taking business (banks) 90 % of claim, up to £ 18,000Friendly Societies Protection Scheme Insurance business (friendly

societies)100 % of claim under compulsoryinsurance. 90 % on other types.

Investors Compensation Scheme (ICS) Investment business (areas of SROsand FSA

£ 48,000 (100 % of first £ 30,000, 90% of the next £ 20,000)

Policyholders Protection Scheme Insurance business (general and lifeassurance companies)

100 % of claim under compulsoryinsurance. 90 % on other types.

Individual Schemes Investment business (RPBs) At least that of the ICS (Source: FsaC97b:p.10)

It is envisaged that the differentiated levels of compensation remain the same for the individual

lines of business under the single Financial Services and Markets Compensation Scheme. The

single scheme will cover three sub-schemes with responsibility for deposit-taking, insurance and

investment, respectively (FsaC97b:p.21).

The Investors Compensation Scheme (ICS), set up under the FSA8682 is a company in its own

right, funded by the investment firms (SIBh). For investment firms under the aegis of the FSA or

that of the SROs, the funding of the schemes (and of the regulators as such) may be considered a

part of a business arrangement as the authorised, regulated firms are more attractive to the

individual, private investor than an unauthorised company. The advantages for the investor are

obvious: the firm handling the investment must comply with the ethical and statutory rules set out

in the FSA86, delegated to, and interpreted by the FSA. Thus, the investor is ensured fair treatment

and a prudent handling of the funds invested. If an investor is given misleading or wrong advice, he

may lodge a complaint, first with the firm and subsequently with the regulator in case the problem

is not solved. Where the firm finds itself unable to pay back the money held in trust for the investor,

the investor may, subject to the rules of the scheme recover up to 100 per cent of the funds that

would otherwise have been lost or only recovered through lengthy and costly legal action.

For the regulated firms, the relationship to the regulators may be somewhat more ambiguous. On

the one hand, the firms wish to attract customers by offering security and fairness, but on the other

hand, they are forced to participate in the funding of regulators, including compensation schemes.

82 Section 54 of the Financial Services Act authorises the delegation of powers to establish a “scheme for compensatinginvestors” where authorised persons fail to meet their obligations.


6.3.2. The Danish Investor Guarantee Fund

The general principle of self-funding of compensation arrangements by the financial institutions

also applies in Denmark. Compensation is covered by “Lov om en garantifond for indskydere og

investorer” (the Danish Depositors and Investors Guarantee Fund Act), last modified in 1998 to

incorporate the EC Deposit Guarantee and Investor Compensation Directives (Lgii98:Notes).

The establishment of “Indskydergarantifonden” (the Investor Guarantee Fund) in Denmark derives

in part from failures in the banking sector, which is why the approach to ailing banks must be

included in this discussion of the Investment Guarantee Fund. It has been argued that some Danish

banks are “too big to fail,” and that the incentive for (individual) consumers to lead active

supervision with such banks is reduced by the knowledge that the government will bail out ailing

institutions (RasB96:p.72). However, it is difficult to curb the growth of corporate bodies, and the

focus of the legislator is not on curtailing the size of banks but rather on establishing measures for

the supervision of banks to minimise and contain the systemic risk presented by the institutions.

In the period from 1984-1994, seven Danish banks were wound up (of which only two did not

continue their activities under another bank), more than 40 banks and other financial institutions

were taken over or merged as a result of failures, and five failing banks were subjected to public

intervention83 (TvæR95:p.9ff). The latter is the more interesting for the purposes of this thesis, as

the attitude of the public authorities to bank failures helps understand the approach to financial

services regulation in Denmark.

In general, a feature shared by the failing banks in the period was exposure to economic cycles

because of excessive lending (TvæR95:p.8). The establishment of the Deposit Guarantee Fund in

1988 is important, as this reflects a change in attitude by the Danish authorities towards increased

depositor protection. Before the Fund came into action, Danmarks Nationalbank, the Danish central

bank, intervened in the bank failures though no direct systemic risk was present.84 An important

consideration will have been the one of maintaining public faith in the financial system in Denmark,

however. All the failures in the period were heavily commented by the media, and swift action must

83 Public intervention in the form of extension of loans and guarantees by the Nationalbank (TvæR95:p.75).84 The banks were small or specialised, and the losses incurred by investors as well as the influence of the failures onthe economy as a whole would have been overseeable even if the banks had been allowed to collapse withoutintervention (TvæR95:p.69f).


have been considered essential to contain nervousness on the part of investors and depositors.

Another consideration may have been the preservation of the favourable Danish image towards

other countries. Denmark steered pretty well clear of the financial institutions crises experienced in

the countries with which it tends to compare itself in many respects, Norway and Sweden. The two

latter countries have contributed SEK 65b and NOK 25b to the ailing banking sector in the years

1991-94 alone (TvæR95:p.8).

6.4. Danish and British Financial Regulation Objectives

Financial regulation serves the purpose of protecting the financial system as well as the individual

investor, depositor or policyholder. Financial institutions should not use the regulatory system as an

opiate because they are too big to fail and sure to be bailed out in the case of a failed business

strategy. The regulators should constrain the risk-taking of financial institutions, which, on the other

hand, must be able to offer a high level of return to their customers.

The Danish and British financial regulators differ in the area of consumer protection. The FSMB

fronts the protection of the consumer at the FSA, whereas the DFSA finds no equivalent direct

provisions governing its activities in Danish financial legislation. There has been a tendency in

Denmark to promote consumer protection in case of bank failures through the creation of the

Investor Guarantee Fund, but Britain has several similar compensation schemes. The priority of

consumer education is also unique to the UK FSA. It cannot on the basis of these findings be

inferred implicitly that Denmark favours the financial services providers to the detriment of the

consumer. However, it was established above that the DFSA may have a problem in defining which

of the parties to actual crisis situations to support.


7. Accounting for Authority

Danish and British financial services are governed by framework legislation which the regulators

may fill out subject to certain provisions. In this section, it will be argued that the powers delegated

to the regulators must be countered by adequate accountability. The focus is on the new FSMB and

the responsibilities of the FSA, though the DFSA should be subject to similar accountability

requirements. The FSMB is particularly interesting as it has yet to prove its viability in practice.

7.1. FSA and FSMB

This section endeavours to further examine the powers vested in the FSA under the FSMB. In

consequence of the regulator’s wide-ranging powers flows the need for accountability of the FSA in

the exercise of its duties and responsibilities. It is discussed whether the elastic framework offered

by the FSMB provides the FSA with excessive rights relative to the provision of control

mechanisms in respect of its activities. A brief linguistic substudy into the frequency of text

convention-specific words in the Bill is undertaken in order to establish the level of discretion

offered to the FSA and consequently the level of accountability needed.

The scope of the draft FSMB extends to areas previously covered by the Insurance Companies Act

1982, the FSA86, the Banking Act 1987 and aspects of the Building Societies Act 1986 and the

Friendly Societies Act 1992 (HMT98a:p.1). The FSMB unites in one single piece of legislation the

statutory basis for the FSA, whereas provisions pertaining to the conduct of business, capital and

other requirements of the various financial services providers remain within their respective,

individual acts much as is the structure of Danish financial legislation.

The British FSMB introduces a single authorisation procedure with the FSA for all types of

financial services providers.85 In Denmark, authorisation also rests with the regulator, the DFSA,

but the authorisation procedures are set out in specific acts relating to the type of business for which

authorisation is sought. The British approach counters the tendency of financial services providers

to diversify their activities with an ensuing requirement for authorisation in respect of each type of

activity, and the single authorisation approach may cut quite a lot of red tape. However, the Danish

85 “Authorisation” does not include capital adequacy requirements and the like but is merely a question of time limitsand other technicalities relating to the authorisation procedures of the UK FSA (FSMB98: Part IV)


position of keeping authorisation procedures in the respective acts would appear to be equally

sensible as the requirements differ with the type of business.

The FSA has at its disposal five overall standard setting instruments which are applicable to

regulated entities:86

1. Rule-making (e.g. the FSA principles for business (Table 2.1. above) and detailed requirements)2. Publication of principles applicable to persons employed by regulated firms, e.g. senior

management (corporate governance considerations)3. Laying down evidential provisions (e.g. “suasive” codes of conduct which imply no direct

obligations on those regulated)4. Endorsement of codes or standards issued by regulated firms5. Issuance of guidance (e.g. definitions and interpretations of legislation)

The first instrument is the most tangible of the powers, as it directly influences the activities by the

regulated firms and can be followed up by disciplinary sanctions. Standards are set out in the FSA

Handbook of rules and guidance (FsaM98a:p.24). Arguably, the statutory rights, powers and

responsibilities of the FSA should be balanced by an effective check on the exercise of this

authority. The following section studies the powers under the FSMB from a linguistic point of view.

7.2. Linguistic Examination of the Financial Services and Markets Bill

This linguistic substudy aims at examining the degree of the elasticity of the delegated legislation

(see section 2.3. above) of the FSMB with a view to facilitating an objective assessment of the need

for control with the FSA.

The open-ended nature of the FSMB is revealed when the Bill is subjected to a simple linguistic

analysis. A prevailing feature of British law texts is the use of the modal verbs may and shall87 in

the deontic sense.88 Shall would appear to be the more committing of the two modals, cf. the

following examples taken from the Bill:

a. “Behaviour shall be disregarded for the purposes of subsection (1) unless thebehaviour occurs [...]” (Clause 56 (4))

86 The instruments are listed in FsaM98a (p.13).87 See e.g. FabI95:p.27.88 Shall can of course only be used deontically. Shall is used for expressing commitment, whereas may in the deonticsense expresses permission. For a brief discussion of epistemic and deontic use of English modal verbs seeBacG97:p.353ff.


b. “Rules may specify a procedure for resolving questions arising in connection with theoperations of section [...]” (Clause 333 (4))

c. “A person guilty of a holding out offence is liable on summary conviction, to imprisonment for a term not exceeding six months [...]” (Clause 13 (4))

Examples a. and b. show commitment (a “command”) and permission, respectively. The third

example demonstrates a feature that is quite common to the FSMB, but not a normal characteristic

of British legislation, namely the use of the present tense. The FSA subscribes to the popular “Plain

English” movement, promoting the use of easily accessible terminology and no-nonsense

information - much in line with the consumer protection objective of the regulator (FsaF97:p.27).

However, the sender of this piece of legislation is not the FSA, but HM Treasury. It would not be

appropriate for the FSA to write the legislation governing its own activities, though the FSA

actually is the prosecuting and judicial authority within the area of financial services given its

powers to impose rules, supervision and sanctions on regulated firms and persons.

Interestingly, electronic processing of the FSMB reveals that the committing shall of example a. is

used only eight times in the Bill. The permissive may in example b. appears in the Bill in not less

than 625 places.89 In order to provide a basis for comparison for the delegated legislation, a piece of

primary legislation with little or no delegative powers, the English Arbitration Act 1996, was

processed as well, showing an almost equal distribution of shall and may with a respective 156 and

166 appearances in this Act (Arb96).90

As regards concordance, it should be noted that may appears after Authority (the FSA) 132 times in

the Bill. With a total of 354 appearances, must succeeds Authority 82 times. This indicates that the

FSA is granted a permission in 132 cases and imposed an obligation in 82 cases. However, the

extensive use of the present tense in the Bill dilutes the effect of these findings somewhat, as

permission, obligation and commitment may also be realised lexically and not only by modal verbs.

This linguistic substudy has consequently proved that a main feature of the FSMB is to set out a

range of permissions. Combined with the knowledge that the Bill defines the financial services

89 The epistemic use of may (i.e. in the sense of possibility) cannot be expected to appear in a law text which is why mayin this connection is deontic only.90 It should be noted that the FSMB contains a total of 65,534 words whereas the Arbitration Act word count only totals19,311. The relationship between the two modals may have been expected to be equal, however.


regulator and outlines its duties, it can be established that a general aim of the FSMB is to vest in

the FSA enabling powers for the use of the exercise of its activities.

It may be argued that the consequences of the provision of a number of “open-ended” permissions

like example b. above necessitates the maintenance of an efficient control with the regulator and its

decisions and rules. The FSA should be interested in subjecting itself to such control if considering

the desire to front the focus on consumers.

7.3. The Supervisor Supervised

Having thus established the deviation from the normal legislative text convention of the FSMB and

the quite significant powers of decision and rule-making of the FSA in the previous section, the

focus will now be turned to the accountability of the UK financial services regulator.

It has been established that the Danish financial services regulators perform the functions of

legislator, investigator, prosecutor and judge in relation to the regulated entities. The UK FSA is in

the same position. Offences of a severe nature may, however, be referred to the courts of justice. In

both countries, the regulators may impose fines for violations of rules. It is obvious that these

powers call for independence and accountability on the part of the regulators.

Schedule 1 to the FSMB specifies the constitution and organisation of the FSA. Particularly

interesting in relation to the powers delegated to the FSA is the governing body of the regulator,

which must include non-executive members (FSMB:Sch.1,C.3(1)). The non-executive directors will

constitute the majority of the governing board, according to changes to the FSMB announced in

early 1999 (FT99b). This majority constitutes a non-executive committee, which has among its

functions the task of reviewing the FSA’s proper discharge of its duties as decided by the governing

body. The governing body may delegate most of its functions to sub-committees or the like, but not

the ones referred to as “legislative functions” in the Schedule (FSMB:Sch.1,C.5)).91 These latter

functions include the power to make “rules and codes of practice and publishing statements of

principle and statements of policy” (FSMB:Sch.1,C.1)). The legislative functions of the FSA - and

other decisions of the governing body - are thus subject to first-instance monitoring by the non-

91 This is in accordance with the concern voiced in BarL96 that sub-legislation should not be too remote from theprimary legislators (p.30f).


executive committee. However, the committee is appointed by the body it is supposed to monitor,

i.e. the FSA itself (FSMB:Sch.1,C.3(2)). Hence there is a slight risk that this committee may be

somewhat biased towards approving the actions of the governing body.

During the preliminary phase of defining the financial services regulator under the regime of the

FSMB, the FSA itself pointed to the possibility of being accountable towards a Treasury Select

Committee (FsaM98a:p.9). This option would appear to not be included in the Bill drafted by the

Treasury.

The draft FSMB provides for the establishment of a Financial Services and Markets Appeals

Tribunal with powers to hear appeals from regulated entities against the decisions of the FSA

(FSMB:Cl.67(1)). Clause 68 (4) of the FSMB sets out that

”The Appeal Tribunal may confirm, vary or set aside the decision which is the subjectof the appeal and may—(a) remit the matter to the Authority,(b) impose, revoke or vary the amount of a fine,(c) make recommendations as to the Authority’s regulating provisions or procedures,or make any other decision which the Authority itself could have made.”

The rules and practices of the FSA will be examined by the Director General for Fair Trading in

order to avoid anti-competitive consequences (FsaM98a:p.10). Furthermore, an independent

Complaints Commissioner has been appointed to investigate complaints against the FSA (ibid.). A

single Financial Services Ombudsman scheme will replace the equivalent complaint handling

arrangements of the previous regulators (FsaM98a:p.58).

The FSA is aware of the financial industry’s calls for adequate accountability mirroring the

sweeping powers of regulation and sanctions. In order to meet industry concerns, the FSA will set

up a practitioner forum to review cost-effectiveness and inspire flexibility, innovation and

promotion of competition (FT98t). The establishment of a consumer panel can also be seen as an

attempt to put a check on the exercise of the FSA’s powers (FT98v).

The broad framework of the FSMB does not offer a detailed description of the nature of violations

to be pursued by the FSA. Throughout the consultation process following the publication of the

FSMB, the lack of clear definitions of offences to be subject to punishment by means of civil fines


has been criticised. It has been argued that the absence of definitions of the offences is in

contravention of the European Convention on Human Rights aimed at ensuring a fair trial for

everybody. A code of conduct on market abuse has been published, but opponents claim that it fails

to meet the Convention standards. The draft FSMB is perused by a parliamentary committee

scheduled to notify amendments to the Bill by Easter 1999 (FT99a). In the consultation process, the

UK media have played an important role in communicating informal criticism of the draft

legislation, and the parliamentary committee as well as the FSA may have been influenced by the

interest in the FSMB. Comments by the FSA give the impression that the organisation is very keen

on paying attention to the concerns voiced and suggestions presented by financial market

participants. This attitude does in itself suggest an improved basis for regulation of the City.

7.4. The Accountability of the FSA

The FSA does hold considerable powers over the industry it regulates. In its prudential supervision

of banks, building societies, insurance companies and friendly societies, the FSA cannot issue rules,

however, as discussed above in connection with the FSA Principles (section 2.4.2.3.). The above

linguistic substudy revealed the extent of the powers delegated on to the FSA.

The appeals options available to the regulated companies would appear to match the powers of the

FSA. An examination of the internal governance of the FSA shows that the frontline control

performed by the non-executive committee on the Board could be biased if the FSA executive

board chooses to appoint members who share its views on particular issues. Further, a Treasury

Select Committee could monitor the FSA’s activities. As a single regulator, the FSA lifts a heavy

burden and should be responsible towards the regulated entities.

On an overall level, the FSA meets the accountability requirements expected and formulated by the

industry through the public debate. The DFSA does not appear to be equally responsive to public

criticism and suggestions in the media, though it does take the advice of the industry before

applying new supervisory methods. Reviews of its methods and activities are most often published

in the form of expert comments, e.g. in the DFSA annual reports. This is a more “closed” approach

than the British one, which involves the publication of consultation documents to be commented by

the public.


8. Conclusion

With the ongoing financial services regulation reform, the UK is concentrating its previously

decentralised regulatory regime. Legislation has facilitated cross-industry marriages leaving single-

industry SROs prone to unnecessary duplication and a handicapped reaction process resulting in an

increased risk of regulatory arbitrage and adding to the cost of regulation. The UK has moved

towards the centralist approach to financial regulation favoured in Denmark since 1990. The

creation of the Danish Securities Council in 1996 cannot be said to constitute a decentralisation of

the regulatory regime. The intricate distribution of regulatory powers between the Securities

Council, the DFSA and CSE is found to be a problem. Listed companies in Denmark may find the

mixed supervisory scopes of the three regulatory levels difficult to cope with.

Some regulatory responsibilities, particularly within the investment business, remain decentralised.

The frontline supervision and regulation performed by investment exchanges in the UK as well as

in Denmark is still necessary due to the proximity of such institutions to the regulated entities. One

result of frontline supervision is the discovery of the Danish PFA pension scandal. However, it is

obvious that the supervision undertaken by CSE may not always have been as sharp as is the case

under the current presidency of the exchange. This demonstrates the possible inadequacies of a

system which delegates powers onto a non-governmental body such as a stock exchange.

In 1995, Danish financial services regulation became governed by framework legislation, as has

been the case for many years in the UK. Such delegated legislation ensures flexibility in regulation

but needs to be efficiently controlled, as it is not subject to immediate parliamentary control. Under

the British FSMB, the new single regulator continues to enjoy wide rule-making powers. The UK

regulator is aware of the ensuing need for accountability, and measures have been put in place

under the proposed legislation. The Danish regulatory regime forms part of the public

administration and is well organised in terms of appeals and complaints procedures.

The UK FSMB is less detailed than the Danish Securities Trading Act, as it contains a very high

level of enabling powers, which are conferred upon the FSA. Interestingly, the terminology study to

follow in the next section of the thesis shows that the FSA uses these powers to create more detailed

rules than is the case in Denmark.


With the approximation of the regulatory structures in Denmark and Britain, the responsibilities of

the DFSA (and the Securities Council) and the FSA have also been aligned to a considerable

degree. For almost all regulated firms, authorisation procedures, capital, solvency and management

structure requirements are similar in the two countries as a result of EU harmonisations. When the

FSA becomes fully operational, the same supervisory methods will apply to the banking and

insurance industries in Denmark and Britain. As concerns investment markets, there is a traditional

focus on self-regulation by the exchanges. It is in the new challenges with which the regulators are

faced that the differences appear. The UK FSA is for instance more advanced in its approach to

financial conglomerates and financial services operations via the internet. FSA is also actively

addressing the issue of corporate governance and internal management procedures, not least as a

result of the fall of Barings Bank.

Though the Danish and British supervisory approaches are very similar in most areas, there is one

major difference. The new FSMB places consumer protection as the first and last concern of the

FSA. The Danish Securities Trading Act merely focuses on the good securities trading practice of

regulated entities. The personal pensions mis-selling affair is an example of the FSA’s concern for

the individual consumer. It would be interesting for Denmark to have a similarly clearly formulated

statutory ambition of fronting the interests of the consumer. The quandary in which the DFSA has

found itself in the Hafnia insurance and Faroe bank scandals of whether to support shareholders or

policy-holders and depositors could have been avoided if the Danish legislation were more specific

in this area.

The FSA has the edge on its Danish counterpart in many areas. This may partly be ascribed to the

size of the financial services industries under its regulatory aegis. However, the success of the new

FSA will rely heavily on its ability to integrate its component parts in the single regulatory regime.

It must strive to maintain the proximity to the regulated entities while at the same time being able to

exploit the consolidation to cut the amount of red tape under the previous regulatory regime. The

lesson from Denmark is that the most important accountability measure is not provided in the

financial services legislation. It is the voice of the media, the regulated industries and the investors,

depositors and policyholders.


9. Terminology

The study of terminology presented in this section is relevant to translators and other producers and

receivers of communication within the financial services sector. The terminology part of this thesis

aims at presenting the translator or any other party to communication within the financial services

industry with a dictionary of definitions on a distinct area of financial services regulation.

The structure of this main section falls into three parts. First, the choice of terminological study is

accounted for. Subsequently, a section outlines the principles of the organisation of the terminology

before the actual terminological findings are presented.

9.1. Choice of Terminological Study

This section endeavours to introduce the main supervisory responsibilities in respect of

contraventions of Danish and British securities legislation. More specifically, terms and concepts in

the Danish Securities Trading Act and the FSA draft Code of Market Conduct will be discussed.92

The scope of the terminological review is quite narrow, as it focuses on securities legislation alone

whereas the issues discussed in the comparison of regulation in Britain and Denmark covered the

tripartite composition of financial services constituted by the areas of investment, deposit-taking

and insurance. Thus, this terminological study only covers one aspect of financial services

regulation. The choice of securities legislation mirrors the slightly greater weight attached to the

subject domain of investment over the other two component parts of financial services in the

preceding sections of the thesis. Interestingly, the FSA draft Code of Market Conduct presents more

detailed regulation than the Danish Securities Trading Act (and the CSE and AMP rule books) as

reflected in the number of terms identified in the British system (see e.g. Tables 9.2. and 9.3.

below). The offences related to insider dealing may seem trivial, as they are covered by an EC

Directive which is accessible in the languages of the EU member states, but two factors make this

area an interesting choice for terminological purposes. First, the underlying Directive only dictates a

minimum standard which the member states may amend and interpret. Second, the 1998 FSA draft

Code of Market Conduct introduces new concepts in British financial regulation. At the same time,

the terminology of the Danish Securities Trading Act would not appear to have been explored by

92 The UK equivalent to the Danish Securities Trading Act, the proposed Financial Services and Markets Bill, does notset out detailed provisions as to the offences relating to securities trading. Rather, the FSA has published a draft Code ofMarket Conduct detailing the requirements on the conduct of market participants.


Danish dictionaries. Two translations of the Act into English made by CSE and the consultancy

firm Arthur Andersen, respectively, will be commented on in the terminology study.

As defined in the introductory thesis statement, the purpose of this thesis is to provide Danish and

British translators, regulators and other participants in the financial sector with an overview of

financial regulation in the two countries. In the terminology section, this ambition is reflected by a

double set of conceptual systems, i.e. one for each language. Danish and British securities

legislation share a number of features but differs in focus, the degree of detail etc. It is consequently

necessary to deal with each language separately and to analyse the extent to which concepts match

across the languages. In the event of lack of conceptual matches, or a conceptual deficiency in one

language, it is attempted to find near-equivalent terms or, failing to find such terms, to construct

terminology which describes the concept. An example is the translation of the concept of

“kursmanipulerende handlinger”, which derives from the Danish Securities Trading Act, and which

is translated by “actions intended for manipulating the market” (record D9 below). This Danish

concept does not find a direct counterpart in British securities legislation, and a descriptive

translation is necessary. Figure 9.3. below visualises the conceptual mismatching between

“kursmanipulation” and the UK concept of “market manipulation”. Conceptual deficiencies

materialise in a different branching of the conceptual trees for the languages (Figures 9.1. and 9.2.

below). Further, the translation of a concept will in many cases not equal a concept in the target

language, meaning that, for instance, the English translation of a Danish concept does not match

any entry in the British conceptual system. All definitions, concepts and terms are measured against

the relevant counterpart in the other country’s financial services regulatory system, thus reflecting

and drawing on the conclusions of the comparative analysis presented in the sections above.

9.2. Organisation of the Terminology

For reasons of clarity, each individual term and its synonyms, if any, are placed in a table

containing all information about the concept in question, i.e. a terminological record. The tables are

arranged as set out below in Table 9.1. All definitions, contexts and, unless otherwise indicated,

comments are quoted directly from law texts, text books and other publications. Where such

quotations are amended by the author (e.g. in order to link definitions covering more than one

sentence in the original source text), such information is surrounded [square brackets]. Where the

author’s further comments (e.g. translation comments) are added, this is indicated in brackets (KJE).


Source reference is also made in brackets immediately following quotations. Each term is assigned

an identification number commencing with ”D” for Danish records and ”U” for the British ones so

as to reduce recognition errors and facilitate the references to the terminological record.93 The

concepts are graphically visualised in separate conceptual systems for each language (Figures 9.1.

and 9.2. below) showing the hierarchical relations between the terms.

Table 9.1. Organisation of the TerminologyTerm(U11)

Term entry and number, e.g. ”privileged information” and source, e.g.(FsaM98c:p.13)

Grammar Grammatical information, e.g. ”Noun”. For Danish terms, the definite andplural forms are indicated, e.g. ”Noun, -en, -erne”. For British terms, only theplural is indicated.

Synonym Synonym to term, if any.Grammar Grammatical information about the synonym.Position Indication of hierarchical position (e.g. 1.1.1.2.) in the conceptual system (e.g.

Contraventions of the FSA draft Code of Market Conduct)Definition Definition of the term in original quotation with additional information in

[square brackets]Context Original context demonstrating the use of the termContextSynonym

Original context demonstrating the use of the synonym

Definitioncomment

Comment on the definition of the term.

Translationpractice

This field is only applicable to the Danish terminology, as no translations ofEnglish texts into Danish have been found

Dictionarypractice

Dictionary practice is shown on the basis of the two majorDanish/English/Danish dictionaries within legal and economic language,”Juridisk Ordbog” (FraJ96, FraJ94) and ”Økonomisk Ordbog” (SveD96, SveE94),respectively. See the Bibliography for complete sources.

Suggestedtranslation

The recommended translation of the term, e.g. ”intern viden”

Translationcomment

Comment on the translation. Discussion of equivalence between Danish andBritish terms, including an analysis of specific problems, if any, and ajustification of the suggested translation.

In the following, Tables 9.2. and 9.3. list the Danish and British terms, their assigned numbers and

their positions in the hierarchical systems as set out in Figures 9.1. and 9.2 below. Denominations in

bold letters are not terminological records, but indicate subclassifications of the terminology.

Hence they are not assigned identification numbers. Two concepts (“intern viden”, “privileged

information”) appear in italics, as they do not constitute contraventions of the securities legislation

but rather are central to the understanding of such contraventions.

93 The identification number is only appropriate in large conceptual systems, but the terms have been assigned numbersfor the sake of completeness.


9.3. Terminology Study

Figure 9.1. Tilsyn med værdipapirmarkeder i Danmark

Fondsrådet Finanstilsynet Fondsbørsen/AMP

1. markedstilsyn (D1)

1.1.Overtrædelser af Lovom Værdipapirhandel

1.1.1.intern viden;inside information (D4)

1.1.1.1. misbrug afintern viden (D5)

1.1.1.1.1. videregivelseaf intern viden ; tipping (D6)

2. virksomheds-og solvenstilsyn (D2)

1.1.1.2.1.2.indberetning afhandel med egneværdipapirer uden at det ermarkedet bekendt(D11)

1.1.1.1.2. insiderhandel;insider trading (D7)

1.1.1.2. kursmanipulation;manipulation (D8)

1.1.1.2.1. kursmanipulerendehandlinger (D9)

1.1.1.2.1.1.offentliggørelseeller udspredelseaf urigtige oplysninger om en udsteder af værdipapirer (D10)

1.1.1.2.1.4.indberetning af handelnår det mellem sælgerog køber er aftalt, attab dækkes på andenmåde, uden at det ermarkedet bekendt (D13)

1.1.1.2.1.3.indberetning af handel med sigselv uden at deter markedet bekendt (D12)

3. markedsovervågning;stockwatch (D3)

Tilsyn med værdipapirmarkeder i Danmark

Colour Code Definition

RegulatorsOrganisation criteria for hierarchical system

Concepts which are essential components of the concept of insider dealing and related offences, though not in itself a contraventionof securities law.

Terms and concepts


Figure 9.2. Supervision of securities markets in Britain

Supervision of securities markets in Britain

The Financial Services Authority

Recognised Investment Exchanges

1.market monitoring; market supervision (U1)

1.1.Contraventions of the FSA Draft Code of Market Conduct

1.2.Contraventions of the Criminal Justice Act

1.1.1.market abuse (U2)

1.2.1.insider dealing;insider trading (U15)

1.1.1.1.market manipulation (U3)

1.1.1.1.1.artificial transactions(U4)

1.1.1.1.2.price manipulation (U6)

1.1.1.1.3.dissemination ofmisleading information;dissemination of inaccurate information(U10)

1.1.1.1.2.1.abusive squeeze (U7)

1.1.1.1.2.1.1.short squeeze;bear squeeze (U8)

1.1.1.1.2.1.2.long squeeze (U9)

1.1.1.1.1.1.wash-trade;wash trade;wash sale (U5)

1.1.1.2.privileged information;inside information (U11)

1.1.1.2.1.privileged possession (U12)

1.1.1.2.1.2.tip-offs (U14)

1.1.1.2.1.1.misuse of priviligedinformation (U13)

RegulatorsOrganisation criteria for hierarchical system

Concepts which are essential components of the concept of insider dealing and related offences, though not in itself a contraventionof securities law.

Terms and concepts

Colour Code Definition


Table 9.2. Tilsyn med værdipapirmarkeder i DanmarkTermNo.

TermPosition

Term English Translation

Tilsyn med værdipapirmarkeder iDanmarkFondsrådet

D1 1. markedstilsyn market supervisionFinanstilsynet

D2 2. virksomheds- og solvenstilsyn supervision of solvency andbusiness

Fondsbørsen/AMPD3 3. markedsovervågning; stockwatch market surveillance

1.1. Overtrædelser af Lov omVærdipapirhandel

D4 1.1.1. [intern viden; inside information]94 inside informationD5 1.1.1.1. misbrug af intern viden abuse of inside informationD6 1.1.1.1.1. videregivelse af intern viden;

tippingdisclosure of insideinformation; tip-off

D7 1.1.1.1.2. insiderhandel; insider trading insider dealing;insider trading

D8 1.1.1.2. kursmanipulation;manipulation

market manipulation;price manipulation

D9 1.1.1.2.1 kursmanipulerende handlinger manipulative actions;actions intended formanipulating the market

D10 1.1.1.2.1.1. offentliggørelse eller udspredelse afurigtige oplysninger om en udsteder afværdipapirer

publication or disseminationof incorrect information aboutan issuer of securities

D11 1.1.1.2.1.2. indberetning af handel med egneværdipapirer uden at det er markedetbekendt

reporting of transactions inown securities without thisbeing known to the market

D12 1.1.1.2.1.3. indberetning af handel med sig selvuden at det er markedet bekendt

reporting of transactions withoneself without this beingknown to the market

D13 1.1.1.2.1.4. indberetning af handel når det mellemkøber og sælger er aftalt, at tabdækkes på anden måde, uden at deter markedet bekendt

reporting of transactionswhen the buyer and sellerhave agreed that any lossesshall be covered in someother way without this beingknown to the market

94 The terms are bracketed because they do not constitute contraventions of the securities legislation, but rather are anessential component feature of the “insider contraventions.”


Table 9.3. Supervision of securities markets in BritainTermNo.

TermPosition

Term Danish Translation

Supervision of securitiesmarkets in BritainThe Financial Services Authority

U1 1. market monitoring; marketsupervision

markedsovervågning;markedstilsyn

Recognised InvestmentExchanges

U1 1. market monitoring; marketsupervision

markedsovervågning;markedstilsyn

1.1. Contraventions of the FSA draftCode of Market Conduct

U2 1.1.1. market abuse markedsmisbrug;overtrædelse af de fastlagteregler for værdipapirhandelen

U3 1.1.1.1. market manipulation kursmanipulation;markedsmanipulation

U4 1.1.1.1.1. artificial transactions skinhandelU5 1.1.1.1.1.1. wash trade; wash-trade; wash sale wash trade; skinhandelU6 1.1.1.1.2. price manipulation ulovlig påvirkning af

kursdannelsen gennemhandler; kursmanipulation

U7 1.1.1.1.2.1. abusive squeeze ulovligt squeezeU8 1.1.1.1.2.1.1 short squeeze; bear squeeze ulovligt short squeezeU9 1.1.1.1.2.1.2. long squeeze ulovligt long squeezeU10 1.1.1.1.3. dissemination of misleading

information; dissemination ofinaccurate information

offentliggørelse ellerudspredelse af urigtige ellervildledende oplysninger

U11 1.1.1.2. [privileged information;inside information]95

intern viden

U12 1.1.1.2.1. [privileged possession]95 besiddelse af intern videnU13 1.1.1.2.1.1 misuse of privileged information misbrug af intern videnU14 1.1.1.2.1.2. tip-offs videregivelse af intern viden;

tipping1.2. Contraventions of the Criminal

Justice ActU15 1.2.1. insider dealing; insider trading insiderhandel

95 The terms are bracketed because they do not constitute contraventions of the securities legislation, but rather are anessential component feature of the “insider contraventions.”


Record D1Term(D1)

markedstilsyn (BørB95a:p.98)

Grammar Noun, -et, -enePosition 1. Tilsyn med værdipapirmarkeder i DanmarkDefinition Markedstilsyn vedrører regulering af markedspladsen, herunder krav til

udstederes oplysningsforpligtelser, krav til oplysninger om handelen påmarkedet (gennemsigtighed) m.v. (BørB95b:p.98)

Context Markedstilsynet udøves af et Fondsråd efter følgende principper […](BørB95b:p.98)

Definitioncomment

[Markedstilsynet ligger hos Fondsrådet, men Finanstilsynet] ”varetager dele afmarkedstilsynet, jf. således Værdipapirhandelslovens kapitel 10” [om misbrugaf intern viden og kursmanipulation] (ChrF97:p.17)

Translationpractice

market supervision (FonB97:p.38);supervision of the market (FonB97:p.38)

Dictionarypractice

None


Market supervision

Translationcomment

See the comments for record D3 ”markedsovervågning”.


Record D2Term(D2)

solvens- og virksomhedstilsyn

Grammar Noun, -et, -enePosition 2. Tilsyn med værdipapirmarkeder i DanmarkDefinition Ved solvens- og virksomhedstilsynet forstås tilsynet med og reguleringen af

institutioner og virksomheder i relation til sikkerhed for disses kapital,forretningsgange samt afgivelse og inddragelse af tilladelse (BørB95b:p.35)

Context Herudover er virksomhederne undergivet Finanstilsynets løbende solvens- ogvirksomhedstilsyn (Andi96:p.18)

Definitioncomment

Hvor det ovenfor under behandlingen af termerne markedstilsyn ogmarkedsovervågning blev nævnt, at Finanstilsynet er ansvarlig for en del afmarkedstilsynet, gælder det modsatte dog ikke, idet Fondsrådet ikke hardirekte indflydelse på solvens- og virksomhedstilsynet. Fondsrådet er såledesikke nævnt i Fondsmæglerselskabsloven, der er en af de virksomhedslove,der udfylder den rammelov, som Værdipapirhandelsloven udgør. Som detoverordnede tilsynsorgan har Fondsrådet dog regeludstedelsesbemyndigelse,mens det er Finanstilsynet, der påser overholdelsen af reglerne og i øvrigtselv udsteder regler inden for visse områder (KJE).

Translationpractice

supervision of solvency and business (CseF98:22)

Dictionarypractice

None


supervision of solvency and business

Translationcomment

The translation practice employed by CSE covers the function of the DFSA,though it may be enhanced by a further description of the DFSA’s roletowards the regulated firms, i.e. supervision of compliance with solvency andcapital requirements and monitoring of business procedures and risks.


Record D3Term(D3)

markedsovervågning (BørB95a:p.59)

Grammar Noun, -en, -erneSynonym stockwatch (AndI96:p.73)

Grammar Noun, -, -esPosition 3. Tilsyn med værdipapirmarkeder i DanmarkDefinition Markedsovervågningen har til formål at sikre redelige markedsforhold,

herunder afsløring og efterforskning af eventuel insiderhandel eller andenform for overtrædelse af de fastlagte regler for værdipapirhandelen(BørB95a:p.98)

Context Fondsbørsen (hhv. den autoriserede markedsplads) kan kræve yderligereoplysninger til brug for sin løbende markedsovervågning (stockwatch), jf. iindberetningsbkg. § 3, stk. 3 (WerB97:p.113)

ContextSynonym

Udover disse karakteristika ved børsvirksomhed er fondsbørser normalt tillagtkompetence til at udstede regler og foretage markedsovervågning – såkaldtstockwatch (ClaP96:p.232)

Definitioncomment

Værdipapirhandelsloven giver adgang til, at nærmere regler formarkedsovervågningen udfærdiges af Finanstilsynet. […]Den umiddelbare markedsovervågning er en opgave, der udføres afbørserne. […] Markedsovervågningen skal foregå løbende, men indebærerogså, at der kan iværksættes undersøgelser af overholdelse af forskelligeformer for lovgivning efterfølgende i forbindelse med konkrete sager.(BørB95b:p.61f)[Københavns Fondsbørs iværksatte en sådan undersøgelse i forbindelse medPFA-skandalen i januar 1999 jf. afsnit 3.1.4. ovenfor] (KJE).

Translationpractice

market surveillance (CseF98:p.18);market surveillance (DidC)

Dictionarypractice

None


market surveillance

Translationcomment

It is important to distinguish between ”markedsovervågning” (D3) (marketsurveillance) and ”markedstilsyn” (D1) (market supervision) which are twodifferent supervisory tasks. The market supervision is the overall responsibilityof the Danish Securities Council in terms of rule-making. The DFSA is alsoresponsible for market supervision because of its function as secretariat to theSecurities Council (Vphl:S.84). Stock exchanges and authorised marketplaces set out the detailed rules (Vphl:S19(2)) subject to the intervention ofthe Securities Council (Vphl:S.83(7)). Market surveillance (stockwatch) isconcerned with ensuring compliance with the rules set out pursuant to themarket supervision function. Thus, a key element of market surveillance isproximity to the market, which is why CSE and AMP are responsible for thisfunction in their respective markets under the supervision of the DFSA and


the Securities Council. WerB97:p.79 states ”Et bedre ord for markedstilsynville måske være markedsovervågning”, (A better word for ”markedstilsyn”might be ”markedsovervågning”). However, this does not correspond with themeaning of ”stockwatch”, as stockwatch is not a direct responsibility of thetop-level supervisors. It is consequently maintained that the two terms are notequivalent, which also appears from the fact that the Danish SecuritiesTrading Act only mentions ”markedsovervågning” in connection with the rulesissued by stock exchanges and authorised market places governing thereporting of deals (Vphl:S19(2) and S.41(3)). Hence, the surveillance aims atsecuring transparency, and even though surveillance includes some degreeof supervision of the compliance with the rules issued by the SecuritiesCouncil, the exchanges and the authorised market places, this supervisionshould not be confused with the overall market supervision performed by theDFSA and the Securities Council. CSE’s translation of ”markedsovervågning”with ”market surveillance” further emphasises the market’s perception of theterm. This is confirmed by DidC. ChrF97:p.20 states that: “Begrebsmæssigtkan overvågning (som er en opgave, der løses af fondsbørserne) således sessom den løbende kontrol med, at udstedere m.v. overholder de gældenderegler, medens tilsynet (der varetages af Finanstilsynet) navnlig er rettet modfondsbørserne og har til formål at tilsikre, at overvågningen gennemføres somforudsat i Værdipapirhandelsloven.” (Conceptually, ”overvågning” (for whichthe stock exchanges are responsible) can thus be seen as the continuingcheck on the compliance of issuers etc. with current rules, while thesupervision (which is handled by the Danish Financial Supervisory Authority)is mainly directed towards the stock exchanges with the purpose of ensuringthat the surveillance is carried out as stipulated in the Danish SecuritiesTrading Act). Furthermore, the DFSA supervises the compliance with theinsider trading rules (SchD96:p.309). See also the Translation comment forrecord U1 “market monitoring”; “market supervision”. (KJE)


Record D4Term(D4)

intern viden (Vphl:S.34(1))

Grammar Noun, -e -, -Synonym inside information (WerB97:p.278)

Grammar Noun, -Position 1.1.1. Overtrædelser af Lov om VærdipapirhandelDefinition Ved intern viden forstås ikke offentliggjorte oplysninger om udstedere af

værdipapirer, værdipapirer eller markedsforhold vedrørende disse, som måantages at få betydning for kursdannelsen på et eller flere værdipapirer, hvisoplysningerne blev offentliggjort (Vphl:S.34(2))

Context Når en direktør i et børsnoteret selskab har intern viden, må selskabet somsådant også […] betragtes som havende den interne viden (SchD96:p.300)

ContextSynonym

Klaus J. Hopt påpeger i sin artikel i ZGR 1991/1.17 ff, efter min opfattelsemed rette, at direktivet går meget vidt i retning af definitionen af insideinformation, insider-personerne og insider-papirerne (WerB97:p.278)

Definitioncomment

En forudsætning for insiderreglernes anvendelse er, at der foreligger internviden (AndI96:p.222)

Translationpractice

inside information (CseS98:S.34(1))internal knowledge (AndD96:S.34(1))

Dictionarypractice

None


inside information

Translationcomment

The Danish term “intern viden” corresponds to the English “inside information”which originates from the Danish version of the EC Insider Directive(89/592/EØF), but is not used in the British FSMB and does not appear tohave been used by the FSA later than 1996 (in the publication ”Equity-relatedDerivatives: Inside Information and Public Disclosure Issues – A ConsultativePaper on Market Conduct”). Rather, the FSA employs a new concept, whichcovers the Danish and (EC) inside information concept: ”privilegedinformation” (see record U11 below). However, it is suggested to translate”intern viden” by ”inside information”, as the term is expected to berecognisable for the professional recipient of the translation. The use of”privileged information” as a translation cannot be recommended as this termis only found in FSA publications, and the term may thus not be said to becompletely equivalent to the Danish concept. For a further analysis of theslight difference between ”intern viden” and ”privileged information”, pleasesee record U11 below. AndD96 has chosen to translate ”intern viden” by”internal knowledge”, which translation, however, neglects the relation to theunderlying EC Directive. It is consequently recommended to avoid using thistranslation. (KJE).


Record D5Term(D5)

misbrug af intern viden (Vphl:S.34(1))

Grammar Noun, -Position 1.1.1.1. Overtrædelser af Lov om VærdipapirhandelDefinition [Misbrug af intern viden er overbegreb for] ”de to insiderforbud, henholdsvis

mod handel og mod videregivelse af intern viden” […] (SchD96:p.295)

Context Baggrunden for præciseringen skal søges i, at det i praksis har vist sig, atFinanstilsynets tilsyn med overholdelse af lovens forbud mod misbrug afintern viden og kursmanipulation i vidt omfang er afhængig også af sådanneoplysninger, hvorfor det findes hensigtsmæssigt at foretage en specificeringheraf i selve loven (VphF98:til nr. 20)

Definitioncomment

Hvis markedet skal kunne løse sin opgave på en effektiv måde, måinvestorerne have tillid til, dels at de behandles lige, og dels at de er beskyttetmod ulovlig anvendelse af intern viden (SchD96:p.293)

Translationpractice

abuse of inside information (CseS98:S.34(1))abuse of internal knowledge (AndD96:S.34(1))

Dictionarypractice

None


abuse of inside information

Translationcomment

The suggested translation is countered by the British ”misuse of privilegedinformation” with the slight twist discussed in connection with the terms of”intern viden” and ”privileged information” (records D4 and U11, respectively).CSE’s translation ”abuse of inside information” respects the distinctionbetween the Danish and British concepts, which is why it is preferred over”misuse of privileged information” (see record U13). The translation practiceemployed by AndD96 is not recommended. See record D4 (”intern viden”)above. (KJE).


Record D6Term(D6)

videregivelse af intern viden

Grammar Noun, -n - - -, -r - - -,Synonym tippingGrammar VerbPosition 1.1.1.1.1. Overtrædelser af Lov om VærdipapirhandelDefinition [Videregivelse af intern viden er en af de] særlige regler i VHL […] for så vidt

angår mulighederne for at videregive (en verbalhandling) […] viden omselskabets interne forhold, som endnu ikke er blevet offentliggjort(WerB97:p.278)

Context Den faktiske videregivelse af intern viden udløser forbuddet, forudsat atpersonen vidste eller burde vide, at der var tale om intern viden som definereti § 34, stk. 2 (AndI96:p.232);Enhver i selskabet, der er i besiddelse af intern viden, må kun videregivedenne viden til andre, såfremt videregivelsen er et normalt led i udøvelsen afvedkommendes beskæftigelse eller funktion i selskabet (WerB97:p.479)

ContextSynonym

Ikke blot er tipping (videregivelse) forbudt, men modtageren af tippet […] måheller ikke handle i papirerne (WerB97:p.279)

Definitioncomment

Forbudet mod videregivelse af intern viden gælder […] ikke, såfremtvideregivelsen sker som et normalt led i vedkommendes beskæftigelse(SchD96:p.302)

Translationpractice

disclosure of inside information [constructed on the basis of CseS98:S.36(1)]passing on of internal knowledge [constructed on the basis of AndD96:S.36(1)]

Dictionarypractice

None


disclosure of inside informationtip-off

Translationcomment

The first translation suggestion is based on FSA’s use of ”disclosure” inconnection with inside information: ”Chinese Walls can be used as aneffective measure for controlling the disclosure of information between onepart of a firm and another eg between the trading desks and corporatefinance” (FsaM98b:p.27). ”Tip-off” is also used by the FSA, but this translationshould only be used where the context renders visible the connection toinside information. See record U14. The use of ”passing on” (AndD96) wouldseem to not reach the stylistic level of the Danish act (and that of the CSEtranslation). See record D4 for a comment on the use of ”internal knowledge”(KJE).


Record D7Term(D7)

insiderhandel (FinB98:p.78)

Grammar Noun, -en, -handlerneSynonym insider trading (AndI96:p.215)

Grammar Noun, -Position 1.1.1.1.2. Overtrædelser af Lov om VærdipapirhandelDefinition Begrebsmæssigt kan insiderhandel eller insider trading defineres som handel

med værdipapirer foretaget af en person, der på handelstidspunktet er ibesiddelse af endnu ikke offentliggjorte oplysninger, som, hvis de blevoffentliggjort, ville kunne påvirke kursen på de handlede værdipapirer(væsentligt) (AndI96:p.215)

Context Bliver et medlem opmærksom på uregelmæssigheder i handelen, f.eks.forsøg på kursmanipulation, insiderhandel eller lign., skal medlemmetuopholdeligt give meddelelse til markedspladsen om sine observationer(AmpR98:D7)

ContextSynonym

Forbudet mod insider trading har nær sammenhæng med de børsnoteredeselskabers pligt til straks-offentliggørelse af oplysninger, der er relevante forkursdannelsen, jf. VHL § 27 […] (WerB97:p.280)

Definitioncomment

Begrebsmæssigt er insiderhandel ikke begrænset til handel med værdipapireroptaget til notering eller handel på en fondsbørs eller anden form for reguleretmarked, idet indførelse af regler om og forbud mod insiderhandel kan baserespå varetagelse af en række forskellige beskyttelseshensyn, der ikke – alene –er knyttet til markeder for udstedelse og omsætning af værdipapirer.(AndI96:p.215)

Translationpractice

insider trading (CseF98:p.18)

Dictionarypractice

insider trading; insider dealing (SveØ96)


insider dealing;insider trading

Translationcomment

Insider dealing is defined in the EC Directive on Insider Dealing(89/592/EEC), and there is consequently not any material difference betweenthe Danish and British concepts. ”Insider dealing” is recommended as thechoice of translation, as this expression is used in the directive (KJE).


Record D8Term(D8)

kursmanipulation (Vphl:S.34(1))

Grammar Noun, -en, -erneSynonym manipulation (AmpR98:D7)

Grammar Noun, -en, -ernePosition 1.1.1.2. Overtrædelser af Lov om VærdipapirhandelDefinition Kursmanipulation omfatter ifølge [Vphl] § 34, stk. 3 fire former for handlinger,

forudsat at de er egnede til at påvirke kursen på værdipapirer eller unoteredeinstrumenter som nævnt i § 34, stk. 1 i en retning, der afviger væsentligt fradisses værdi i markedet. (AndI96:p.241)

Context Ved Finanstilsynets vurdering om anvendelse af forvaltningslovens § 15 vildet indgå, at især bestemmelserne om misbrug af intern viden ogkursmanipulation betragtes som alvorlige økonomiske forbrydelser (VphF98:til §84b)

ContextSynonym

Ethvert medlem er endvidere forpligtet til at give markedspladsen alle deoplysninger, som af markedspladsen skønnes fornødne, for at sikre athandelen finder sted på en redelig måde, herunder at sikre markedet modmanipulation og insider handel (AmpR98:D7)

Definitioncomment

En begrænsning i anvendelsen af forbudet mod kursmanipulation ligger i, atkun fire typer handler efter [Værdipapirhandelslovens] § 34, stk. 3 kankarakteriseres som kursmanipulation (SchD96:p.313)

Translationpractice

price manipulation (CseS98:S.34(1))price manipulation (AndD96:S.34(1))

Dictionarypractice

None


market manipulationprice manipulation

Translationcomment

The use of ”kursmanipulation” partly corresponds to the British concept of”market manipulation”, which covers ”price manipulation”, ”dissemination ofmisleading information” and ”artificial transactions”. The component parts ofthe Danish concept are slightly different as illustrated by Figure 9.3. andrecord D9 below. If the aim is to translate ”kursmanipulation” in its broadestconceptual meaning (i.e. covering all four ”manipulative actions”, cf. recordD9), ”market manipulation” is the best choice. However, if the situation ismore narrowly defined as in record U6 ”price manipulation” (i.e. dealing withthe principal purpose of positioning the market price at an arbitrary andabnormal level) the term ”price manipulation” should be chosen. Mostfrequently, ”market manipulation” will best describe the Danish situation. Thechoice of ”price manipulation” in the CSE and AndD96 translations of theDanish Securities Trading Act is also adequate if the translation does nothave a British target recipient (KJE).


Figure 9.3. Conceptual mismatching between “market manipulation” and “kursmanipulation”

The figure shows the conceptual mismatching between “market manipulation” and“kursmanipulation”. Where the target language has a conceptual deficiency, i.e. lacks acounterpart to the other country’s concept, this is denoted by “(0)”. Broken lines indicate anear equivalence between two concepts, though translations of the concepts may be bestapproached by the provision of a description of the foreign concept.

1.1.1.market abuse (0)

1.1.1.1.market manipulation

1.1.1.2.1.1.offentliggørelse eller udspredelse af urigtigeoplysninger om en udsteder af værdipapirer

1.1.1.1.1.artificial transactions (0)

1.1.1.1.1.1.wash trade

1.1.1.1.2.price manipulation (0)

1.1.1.1.2.1.abusive squeeze (0)

1.1.1.2.kursmanipulation

1.1.1.2.1.kursmanipulerende handlinger (0)

1.1.1.2.1.2.indberetning af handel med egne værdipapirer,uden at det er markedet bekendt

1.1.1.2.1.3.indberetning af handel med sig selv,uden at det er markedet bekendt

1.1.1.2.1.4.indberetning af handel når det mellem køber ogsælger er aftalt, at tab dækkes på anden måde,uden at det er markedet bekendt

1.1.1.1.3.dissemination of misleading information


Record D9Term(D9)

kursmanipulerende handlinger (AndI96:p.219)

Grammar Noun (plur)Position 1.1.1.2.1. Overtrædelser af Lov om VærdipapirhandelDefinition De kursmanipulerende handlinger er: ”1) offentliggørelse eller udspredelse af

urigtige oplysninger om en udsteder af værdipapirer [record D10], 2)indberetning af handel med egne værdipapirer, herunder handel med etkoncernforbundet selskabs værdipapirer, uden at det er markedet bekendt,[D11] og 3) indberetning af handel med sig selv, heunder handel medkoncernforbundne selskaber, uden at det er markedet bekendt, [D12] og 4)indberetning af handel, når det mellem køber og sælger er aftalt, at tabdækkes på anden måde, uden at det er markedet bekendt. [D13] (AndI96:p.241)

Context De kursmanipulerende handlinger er karakteristiske ved, at de ikke er indgåeti fri handel/mellem uafhængige parter […] (AndI96:p.219)

Definitioncomment

Opremsningen må anses for udtømmende […] Anden optræden [som måttevære egnet til at påvirke kursen kunstigt] kan dog eventuelt være i strid meddet generelle krav om redelighed og god værdipapirhandlerskik i Vphl § 3, stk.1 […] (Andi96:p.243)

Translationpractice

None

Dictionarypractice

None


manipulative actions;actions intended for manipulating the market

Translationcomment

There is no direct British counterpart to the Danish Securities Trading Actconcept of ”kursmanipulerende handlinger”. The suggested translationstherefore describes the Danish concept, though they do not capture the exactmeaning of the concept, as this is defined by its four component parts. Whereapplicable, an explanatory note should explain the origin and content of theDanish concept. See also record D8 ”kursmanipulation” and Figure 9.3. (KJE)


Record D10Term(D10)

offentliggørelse eller udspredelse af urigtige oplysninger om enudsteder af værdipapirer (Vphl:S.34(3)1)

Grammar -Position 1.1.1.2.1.1. Overtrædelser af Lov om VærdipapirhandelDefinition Offentliggørelse eller udspredelse af urigtige oplysninger om en udsteder, jf. §

34, stk.3, nr.1, kan forekomme i forbindelse med nyhedsmedier, iaktieanalyser og lignende [udarbejdet] af værdipapirhandlere eller andre samtved udspredelse af rygter i markedet (AndI96:p.243)

Context Ved kursmanipulation gennem offentliggørelse af urigtige oplysninger kan derogså foreligge en overtrædelse af straffelovens § 296, stk. 1 […] (SchD96:p.314)

Definitioncomment

Udbredelse af urigtige, vildledende, tendentiøse eller fortrolige oplysninger,spredning af rygter om udstedere eller børsnoterede værdipapirer eller i øvrigtethvert forsøg på med uhæderlige midler at påvirke kursdannelsen må ikkefinde sted (CseB98:§8)

Translationpractice

publication or dissemination of incorrect information about an issuer ofsecurities (CseS98:S.34(3)1);publishing or disseminating incorrect information about an issuer of securities(AndD96:S.34(3)1)

Dictionarypractice

None


publication or dissemination of incorrect information about an issuer ofsecurities

Translationcomment

”Publication or dissemination of incorrect information about an issuer ofsecurities” is a type of market manipulation. The concept corresponds to theBritish ”dissemination of misleading [or: inaccurate] information” (record U10).The CSE translation is preferred, as it corresponds to the use of nouns in theDanish act (“offentliggørelse”, “udspredelse”). See Figure 9.3. above. (KJE)


Record D11Term(D11)

indberetning af handel med egne værdipapirer uden at det er markedetbekendt (Vphl:S.34(3)2)

Grammar -Position 1.1.1.2.1.2. Overtrædelser af Lov om VærdipapirhandelDefinition […] et selskabs handel med egne værdipapirer og handel med et

koncernforbundet selskabs værdipapirer (AndI96:p.245)

Context indberetning af handel med egne værdipapirer, herunder handel med etkoncernforbundet selskabs værdipapirer uden at det er markedet bekendt(Vphl:S.34(3)2)

Definitioncomment

[Dette forbud] indebærer, at der grænser for den kurspleje, som en udstederkan udøve gennem handel med egne værdipapirer (SchD96:p.314)

Translationpractice

reporting of transactions in own securities without this being known tothe market (CseS:S.34(3)2);reporting transactions with own securities without such fact beingknown to the market (AndD96:S.34(3)2)

Dictionarypractice

None


reporting of transactions in own securities without this being known tothe market

Translationcomment

The closest equivalent to this Danish concept would be ”wash trade” (U5) or”artificial transactions” (U4). These UK concepts are, however, much broaderthan the three Danish narrowly defined manipulative actions, and it canneither be used directly as a translation for the individual action or for thecollective manipulative actions, as it is even broader than the aggregateDanish concepts. SchD96:p.219 also states that the Danish definitions ofmanipulative actions are more narrow than their foreign counterparts. SeeFigure 9.3. and record D9 ”kursmanipulerende handlinger” above. (KJE)


Record D12Term(D12)

indberetning af handel med sig selv uden at det er markedet bekendt(Vphl:S.34(3)3)

Grammar -Position 1.1.1.2.1.3. Overtrædelser af Lov om VærdipapirhandelDefinition Kursmanipulation i form af handel med sig selv jf. stk. 3, nr. 3, foreligger

f.eks., når en person eller et selskab gennem forskellige værdipapirhandlerehandler med sig selv eller med koncernforbundne selskaber til en kurs, derafviger væsentligt fra den aktuelle markedskurs (AndI96:p.245)

Context indberetning af handel med sig selv, herunder handel med og mellemkoncernforbundne selskaber eller selskaber, der kontrolleres af sammeperson eller personkreds, uden at det er markedet bekendt (Vphl:S.34(3)3)

Definitioncomment

Begrænsningen til handel med koncernforbundne selskaber [i dette forbud] erikke hensigtsmæssig, da også indberettet handel til væsentligt afvigende kursmed andre nærstående personer vil give en forkert kursberegning(AndI96:p.245)

Translationpractice

reporting of transactions with oneself without this being known to themarket (CseS:S.34(3)3);reporting of transactions entered into with oneself without such factbeing known to the market (AndD96:S.34(3)3)

Dictionarypractice

None


reporting of transactions with oneself without this being known to themarket

Translationcomment

See record D11 and Figure 9.3. above.

Benjamin Kjeldsen - Regulation and Supervision of Financial Services in Denmark and Britain100

Record D13Term(D13)

indberetning af handel når det mellem køber og sælger er aftalt, at tabdækkes på anden måde, uden at det er markedet bekendt (Vphl:S.34(3)4)

Grammar -Position 1.1.1.2.1.4. Overtrædelser af Lov om VærdipapirhandelDefinition Handel, hvor der mellem køber og sælger er aftalt kompensation for tab på

anden måde, jf. § 34, stk. 3, nr. 4, foreligger, fx. når det mellem parterne eraftalt, at værdipapirerne kort efter salget tilbagekøbes til samme kurs, ellerkøberen gennem andre værdipapirtransaktioner kompenseres forkursafvigelsen (SchD96:p.314)

Context indberetning af handel når det mellem køber og sælger er aftalt, at tabdækkes på anden måde, uden at det er markedet bekendt (Vphl:S.34(3)4)

Definitioncomment

Der foreligger en række sager, hvor kursmanipulation i forbindelse medhandler til urealistiske kurser er blevet påtalt som en overtrædelse af § 11 i dehidtil gældende børsetiske regler (AndI96:p.245)

Translationpractice

reporting of transactions when the buyer and seller have agreed thatany losses shall be covered in some other way without this being knownto the market (CseS:S.34(3)4);reporting transactions if it has been agreed between the purchaser andseller that losses are otherwise covered, without such fact being knownto the market (AndD96:S.34(3)4)

Dictionarypractice

None


reporting of transactions when the buyer and seller have agreed thatany losses shall be covered in some other way without this being knownto the market

Translationcomment

See record D11 and Figure 9.3. above.


Record U1Term(U1)

market monitoring (SIBi)

Grammar Noun, - -sSynonym market supervision (SIBj)

Grammar Noun, - -sPosition 1. Supervision of securities markets in BritainDefinition [The regulation of] trading on the Exchange by monitoring the order book,

market makers’ quotations, the prices at which business is done, tradereporting and compliance with the Exchange’s dealing rules (LseF98:p.36)

Context […] the review showed that there was a need to enhance the resourcesavailable to the executive, to upgrade its market monitoring, and its regulatorycapacity (SIBi)

Definitioncomment

Another aspect of market supervision is to ensure adequate transparency inrelation to how the market works (SIBj)

Dictionarypractice

None


markedsovervågningmarkedstilsyn

Translationcomment

The distinction between the Danish concepts of ”markedsovervågning” and”markedstilsyn” and their respective suggested translations, ”marketsurveillance” and ”market supervision” (performed by CSE and the DFSA,respectively) does not exist in Britain with the introduction of the FSA Code ofMarket Conduct. The supervision of markets in respect of compliance with theCode is shared between the two regulatory levels viz. the RIEs and the FSA.LSE focalises its regulatory tasks (LseF98:p.33ff) whilst also naming the primeresponsibility of “monitoring members’ compliance with its rules” (LseF98:p.34).The FSMB (Cl. 57) confers powers on to the FSA to create the draft Code(which will, in the nature of things, only be a draft until the underlyinglegislation, the FSMB, has been adopted). The FSMB (Part VI) furtherempowers the FSA to intervene in decisions and investigations by the RIEs.Generally, the RIEs have wider powers than their Danish counterparts,however, which is why it is appropriate to use “market supervision” as well as“market monitoring” in respect of their activities. “Markedstilsyn” isconsequently the more accurate of the two suggested translations. (KJE)


Record U2Term(U2)

market abuse (FsaM98b:p.3)

Grammar Noun, - -sPosition 1.1.1. Contraventions of the FSA draft Code of Market ConductDefinition Abuse of financial markets can take a number of forms, for example misuse of

inside information, giving misleading impressions as to the demand for aparticular investment, or attempts to manipulate prices [and what] these havein common is that they distort the efficient operation of the markets(HMT98a:p.43)

Context It introduces important new powers to fine anyone engaging in market abuse(HMT98a:p.43);The Exchange fulfils its responsibilities in a number of ways, including […]investigating suspected abuse of its markets (LseF98:p.34)

Definitioncomment

Some forms of market abuse, such as insider dealing, are criminal offences,and other types of behaviour might amount to offences if, for example, theyare fraudulent (HMT98a:p.43)

Dictionarypractice

None


markedsmisbrugovertrædelse af de fastlagte regler for værdipapirhandelen

Translationcomment

The concept of market abuse, which is an umbrella concept forcontraventions of securities law which have a distorting effect on markets,does not exist in Danish securities terminology (MelN). The conceptualdeficiency is consequently best handled by describing the UK concept. Thefirst suggested translation was presented by MelN, who emphasised,however, that the term is not used among Danish market participants, thoughthey would understand the term. The second suggested translation is found inBørB95a:p.98 (KJE).


Record U3Term(U3)

market manipulation (FsaM98c:p.4)0

Grammar Noun, -sPosition 1.1.1.1. Contraventions of the FSA draft Code of Market ConductDefinition Market manipulation covers artificial transactions, price manipulation

(including abusive squeezes) and the dissemination of misleading information(FsaM98b:p.8)

Context The existing criminal sanctions against market manipulation and insidertrading remain necessary and important deterrents (HMT98a:p.43)

Definitioncomment

HMT are considering whether it would be appropriate for the new regime tocover some markets in respect of market manipulation but not misuse ofprivileged information (and vice versa) (FsaM98b:p.9)

Dictionarypractice

None


kursmanipulation;markedsmanipulation

Translationcomment

See record D8 and Figure 9.3. above for a discussion of the differencebetween the Danish term ”kursmanipulation” and the British ”pricemanipulation” and ”market manipulation”. The dissemination of misleadinginformation (record U10) and artificial transactions (record U4) are componentparts of both ”market manipulation” and ”kursmanipulation”. However, theterm ”kursmanipulation” translates directly into ”price manipulation”. TheDanish concept is broader than the British concept of ”price manipulation”,and hence ”kursmanipulation” is suggested as the first choice for thetranslation of ”market manipulation”. If the translator wishes to accentuate thebroad meaning of the UK concept of market manipulation, ”markeds-manipulation” is suggested. The term is not widely used in Danish securitieslaw, but is found in PedK98:p.10913 (KJE).


Record U4Term(U4)

artificial transaction (FsaM98c:p.9)

Grammar Noun, - -sPosition 1.1.1.1.1. Contraventions of the FSA draft Code of Market ConductDefinition Artificial transactions are abusive when they mislead others, for example

‘wash trades’, where genuine trading appears to be taking place but is not(FsaM98b:p.8)

Context It follows that artificial transactions which are not effected under the rules of adesignated market, but which are disclosed to other market users, maymislead users of the designated market (FsaM98c:p.9)

Definitioncomment

It follows that markets may be distorted if users are misled into believing thattransactions have been carried out for a particular reason or in a particularmanner when that is not in fact the case (FsaM98b:p.10)

Dictionarypractice

None


skinhandel

Translationcomment

The concept of an ”artificial transaction” finds no direct match in Danishsecurities law, though three of the Danish ”manipulative actions” (record D9)involves dealing for the purpose of misleading the market. The suggestedtranslation is constructed to describe the UK concept. Danish marketprofessionals will not be familiar with the suggested translation, though theyare expected to comprehend its meaning, which overlaps with the Danishmanipulative actions (MelN). See record D11 and Figure 9.3. above for adiscussion of market manipulation. Record U5 below also deals with thisconceptual mismatching (KJE).


Record U5Term(U5)

wash trade (FsaM98c:p.10)

Grammar Noun, - -sSynonym wash-trade (FsaM98b:p.11)

Grammar Noun, -sSynonym wash sale (ColD92)

Grammar Noun, - -sPosition 1.1.1.1.1.1. Contraventions of the FSA draft Code of Market ConductDefinition […] transactions that may create a misleading impression as to the level of

activity in the market for an investment either generally or at particular pricelevels [… e.g.] a transaction or series of transactions between counterpartiesthat do not involve a genuine change in either party’s interests [misleadingother market users] by disclosure of the transactions into thinking that there isgreater activity in the market for the investment than is actually the case(FsaM98b:p.10f)

Context It will be presumed that a transaction does not involve a genuine change in atleast one of the parties’ interests in the investment or reference commodity if[…] the transaction is arranged so as to effect simultaneously a purchase andsale between the same parties of the same interests in an investment i.e.‘wash trades’ (FsaM98c:p.9f)

ContextSynonym

The term ‘wash-trade’ is widely used in this context and it is such trading thatthe FSA seeks to prevent in the interests of market integrity (FsaM98b:p.11)

Definitioncomment

Such a transaction might be a simultaneous sale and buyback at pricesagreed in advance by the parties concerned, leading other market users tobelieve that two counterparties are genuinely dealing in the investment andputting their capital at risk, when they are not (FsaM98b:p.11)

Dictionarypractice

None


wash trade;skinhandel

Translationcomment

A ”wash trade” can be multiple trades in one paper through different brokersin order to create an impression of great activity in the market of theinstrument in question. It is an action to the effect of manipulating the market(MelN) and thus equivalent to the nature, if not the letter, of the Danish conceptof ”kursmanipulerende handlinger” (see record D9) (KJE). A ”wash trade” maycorrespond to three of these actions as defined in the Danish SecuritiesTrading Act, but they would not appear to cover all possible wash tradesituations. Though it would be recognised by the market, ”wash trade” is not acommonly used term in the Danish financial markets (MelN). However, theterm is recognised, and it can be used. ”Wash trade” is consequently the firstchoice for a translation. The second suggestion is a constructed descriptiveconcept. Arguably, professional market participants will not need a translationof the concept of wash trades. See also record D11 (KJE).


Record U6Term(U6)

price manipulation (FsaM98c:p.10)

Grammar Noun, - -sPosition 1.1.1.1.2. Contraventions of the FSA draft Code of Market ConductDefinition Price manipulation occurs where a person deals with the principal purpose of

positioning the market price at an arbitrary and abnormal level dictated by thatperson (FsaM98b:p.8)

Context There are arguments to be made that exchanges who are responsible for thecalculation of closing prices or other references ought to ensure that thealgorithms used are of sufficient complexity so as to make it uneconomic toattempt a manipulation of the price (FsaM98b:p.16)

Definitioncomment

Parties do sometimes seek to move prices to a particular level by buying orselling [and common] targets are closing prices on exchanges that are usedfor valuation purposes in derivative contracts and in the wider economy(FsaM98b:p.15)

Dictionarypractice

None


ulovlig påvirkning af kursdannelsen gennem handler;kursmanipulation

Translationcomment

The UK concept of price manipulation is a component part of the broadconcept of ”market manipulation” (record U3 above) which is countered by theequally broad concept of ”kursmanipulation” in Danish securities law.However, there is no Danish equivalent of ”price manipulation” when regardedseparately from ”market manipulation”. A description of the action, e.g.”ulovlig påvirkning af kursdannelsen gennem handler” goes some way indefining the UK concept to the Danish recipient of the translation, though”kursmanipulation” may be used where the conceptual difference is not veryimportant. See record D8 and Figure 9.3. above. (KJE)


Record U7Term(U7)

abusive squeeze (FsaM98c:p.10)

Grammar Noun - -sPosition 1.1.1.1.2.1.Contraventions of the FSA draft Code of Market ConductDefinition An abusive squeeze occurs where a person has a significant influence over

supply and uses this in conjunction with an on-exchange position to forceother market users to settle with him at arbitrary and abnormal prices(FsaM98b:p.8)

Context The control that can be exerted through an abusive squeeze commonly takesadvantage of a party’s reliance on the exchange’s quality controls or deliverymechanisms (FsaM98b:p.12)

Definitioncomment

Significant influence over supply as such is not seen as an abuse. Rather theCode addresses the way in which such significant influence is exploited ondesignated markets (FsaM98b:p.12)

Dictionarypractice

None


ulovligt squeeze

Translationcomment

The market manipulation constituted by abusive squeezes involving either theholding of short or long positions or the exploitation of a significant influenceover supply, demand, storage facilities and the like with the aim of influencingthe price of the paper or commodity in question is not specifically addressedby Danish securities law. Abusive squeezes are not among the four ”actionsintended for manipulation of the market” (see record D9), but it is assumedthat such manipulation is covered by the general provision in Section 3 (1) ofthe Danish Securities Trading Act to the effect of securing that ”Enhverværdipapirhandel skal udføres på en redelig måde og i overensstemmelsemed god værdipapirhandelsskik” (”All securities transactions shall be carriedout fairly and in conformity with rules of good securities trading practices”(CseS98:S. 3(1)).The Danish term for a squeeze is ”squeeze” as the market participants haveadopted the terminology of their foreign colleagues (MelN). In the Danishmarkets, squeezes are normally regarded as abusive. The following examplewas given by MelN, who trades in bond futures. Futures on Euro-denominated bonds can often be exercised by four underlying bonds. Thebond which is cheapest to deliver will sometimes be squeezed by anexcessive demand if market conditions render an exercise profitable. Thissqueeze is not illegal, as the debt markets, especially in Euro-denominatedbonds, are so liquid that abusive squeezes are not possible. One tradercannot mount enough influence over the market to dictate the level of prices.It is, of course, possible to squeeze, or corner, the market by building up alarge portfolio of the bond in question and refraining from delivering the bonduntil the market demand has driven prices to an abnormally elevated level.


This strategy is speculative rather than abusive.Abusive squeezes may occur in less liquid instruments if it is possible toexercise significant influence over the supply of the underlying paper orcommodity, e.g. by controlling the means of transportation or storage facilitiesnormally used for the commodity. It is important to distinguish between anallowed squeeze and an abusive squeeze, as a Danish dealer in financialinstruments would normally recognise a squeeze as an inherent marketmechanism, i.e. mismatching of supply and demand (MelN). Consequently, theabusive nature of the squeezes covered by the FSA draft Code of MarketConduct must be emphasised. The insertion of ”ulovligt” (illegal/abusive)before ”squeeze” in this record as well as U8 and U9 ensures the properunderstanding of the concept (KJE).


Record U8Term(U8)

short squeeze (FsaM98c:p.11)

Grammar Noun - -sSynonym bear squeeze (FsaM98b:p.12)

Grammar Noun - -sPosition 1.1.1.1.2.1.1. Contraventions of the FSA draft Code of Market ConductDefinition Short or bear squeezes may occur when a short can exert a significant

influence over the delivery process itself or over some critical component ofthat process (FsaM98b:p.13)

Context In short squeezes in commodity products, ships may be chartered orwarehouse space may be occupied so as to make it more expensive to beable to take delivery (FsaM98c:p.11)

ContextSynonym

In bear squeezes the willingness of the person calling for delivery, to acceptdelivery outside the exchange’s mechanisms or make warehouse spaceavailable must also be considered (FsaM98b:p.14)

Definitioncomment

Squeezes can be categorised for the purposes of description into longsqueezes and short (or bear) squeezes. Non-technically and ignoring issuesof timing, a person who is long an investment has more than he has sold. Aperson who is short an investment has sold more than he has (FsaM98b:p.12)

Dictionarypractice

short-squeeze (DenF95)


ulovligt short squeeze

Translationcomment

See Translation comment for record U7.


Record U9Term(U9)

long squeeze (FsaM98c:p.11)

Grammar Noun - -sPosition 1.1.1.1.2.1.2. Contraventions of the FSA draft Code of Market ConductDefinition A long squeeze may occur when a person who has significant influence over

the deliverable supply of a product, demands delivery of the physicalcommodity or investment rather than closing out his position or acceptingcash settlement (FsaM98b:p.13)

Context The control is exerted not on the supply-side (as with long and bearsqueezes), but through the demand-side (FsaM98b:p.16)

Definitioncomment

Squeezes can be categorised for the purposes of description into longsqueezes and short (or bear) squeezes. Non-technically and ignoring issuesof timing, a person who is long an investment has more than he has sold. Aperson who is short an investment has sold more than he has (FsaM98b:p.12)

Dictionarypractice

None


ulovligt long squeeze

Translationcomment

See Translation comment for record U7.


Record U10Term(U10)

dissemination of misleading information (FsaM98b:p.16)

Grammar Noun, -s - - -Synonym dissemination of inaccurate information (FsaM98b:p.16)

Grammar Noun, -s - - -Position 1.1.1.1.3. Contraventions of the FSA draft Code of Market ConductDefinition The price of or market in an investment can be manipulated through the

dissemination of misleading information where market users are influenced bythat information in deciding whether to trade (FsaM98b:p.16)

Context Information may be inaccurate or misleading due to the omission of materialinformation (FsaM98c:p.12)

Definitioncomment

A person who engages in a course of conduct which conveys information toothers may be responsible for a dissemination of relevant information. Anexample would be the apparent movement of physical commodity stocks inorder to create a misleading impression as to the available supply of thecommodity e.g. by making ‘false’ shipments or transfers between warehouses(FsaM98c:p.12)

Dictionarypractice

None


offentliggørelse eller udspredelse af urigtige eller vildledendeoplysninger

Translationcomment

It is important that ”information may be inaccurate or misleading due to theomission of material information” cf. context above. There is thus near-equivalence between misleading and inaccurate information. The CSE Codeof Ethics also places ”udbredelse af urigtige, vildledende, tendentiøse ellerfortrolige oplysninger” in the same category (CseB98:§8). The suggestedtranslation will thus be familiar to the Danish professional recipient of atranslation. The concept is common to Denmark and Britain and there is noapparent need to stress the origin of the term, unless circumstances sodictate. See the Danish term ”offentliggørelse eller udspredelse af urigtigeoplysninger om en udsteder af værdipapirer” (record D10) and Figure 9.3.above. (KJE)


Record U11Term(U11)

privileged information (FsaM98c:p.13)

Grammar Noun, -Synonym inside information (LseF98:p.81)

Grammar Noun, -Position 1.1.1.2. Contraventions of the FSA draft Code of Market ConductDefinition […] information which other market users could not legitimately get (eg

because it is confidential) [regardless of] whether [that] information is public(FsaM98b:p.20)

Context This objective test is important both in the context of the dissemination ofmisleading information and in the misuse of privileged information(FsaM98b:p.8)

Contextsynonym

The purchase or sale of shares by someone who possesses ”inside”information on a company’s performance which has not yet been madeavailable to the market, and which might affect the share price (LseF98:p.81)

Definitioncomment

[…] confidence in markets will be undermined if users believe that they havebeen unreasonably disadvantaged (whether directly or indirectly) by others inthe market having misused privileged information or improperly manipulatedthe market (FsaM98c:p.6)

Dictionarypractice

None


intern viden

Translationcomment

Neither the FSMB or the draft Code of Market Conduct refers to the insiderdealing terminology of the EC Directive on Insider Trading (89/592/EEC), forinstance ”inside information.” Rather the Code introduces the concept ofprivileged information (which does not occur in the FSMB). LSE uses ”insideinformation”, however. Danish securities law makes extensive use of theconcept of ”intern viden” (cf. record D4) as defined in the EC Directive andfurther supplemented by the Danish Securities Trading Act (Part 10), whiche.g. prohibits the dissemination of inside information by any person who mayobtain possession of such information, whereas the Directive only places theprohibition on the first person who had possession of the information(SchD96:p.295). There is a further obligation on Danish firms handling insideinformation to formulate internal rules to the effect of avoiding the abuse ofsuch information (Vphl:S.36(2)). The FSA Code of Market Conduct also variesthe prohibition on the dissemination of privileged information, subject to a testaccording to which ”what is expected of persons [in respect of disseminationof accidentally or purposefully overhead information] is to be judged againstthe standards expected of their peers (FsaM98b:p.21).The Danish and Britishconcepts are, however, very similar. It should further be noticed that the


European Union database SCADPlus in a summary of the Directive uses theDanish term ”privilegeret viden” intermittently with ”intern viden” (record D4)(SCA). The term ”privilegeret viden” neither appears in the Danish version ofthe Directive or Danish securities law textbooks, however (as is also not thecase with ”privileged information” in the English language version). The mostlikely reason for this single appearance of the term is a translation error from”information privilégiée” in the French version of the Directive. (KJE)

Record U12Term(U12)

privileged possession (FsaM98c:p.13)

Grammar Noun, -Position 1.1.1.2.1. Contraventions of the FSA draft Code of Market ConductDefinition A person’s possession of information is privileged possession for so long as

he knows or ought to know that other market users cannot legitimately obtainthat information (FsaM98c:p.13)

Context Commonly a person will have privileged possession because of a specialrelationship the person has with the source, or it may be because he hasobtained the information by reason of a disclosure that ought not to havebeen made or was made mistakenly (FsaM98c:p.13)

Definitioncomment

A person who has privileged possession of relevant information cannot tradein any investment to which the information is relevant if any designatedmarket, on which the investment or another investment from which it is pricedis traded, treats that information as disclosable (FsaM98b:p.19)

Dictionarypractice

None


besiddelse af intern viden

Translationcomment

The concept of ”privileged possession” finds no direct counterpart in Danishsecurities law. However, the Danish version of the EC Insider TradingDirective (89/592/EØF) uses the term ”besiddelse af intern viden”, which isnot, however completely equivalent to the UK concept. Record U11 abovediscusses the use of ”privileged information” versus ”intern viden”. (KJE)


Record U13Term(U13)

misuse of privileged information (FsaM98c:p.13)

Grammar Noun, -s - - -Position 1.1.1.2.1.1. Contraventions of the FSA draft Code of Market ConductDefinition If a person knows the information cannot be legitimately obtained by others

he is caught by the restriction […] (FsaM98b:p.20) [against dealing] in anyinvestment to which the information is relevant (FsaM98c:p.13)

Context However, confidence in markets will be undermined if users believe that theyhave been unreasonably disadvantaged (whether directly or indirectly) byothers in the market having misused privileged information or improperlymanipulated the market (FsaM98c:p.6)

Definitioncomment

There will be times when certain persons have access to relevant informationthat is not available to others. Such persons may have an opportunity to takeadvantage of that information by trading on the basis of it, thereby realising aprofit or avoiding a loss (FsaM98c:p.13)

Dictionarypractice

None


misbrug af intern viden

Translationcomment

See the discussion in records D4, U11 and D5.


Record U14Term(U14)

tip-off (FsaM98c:p.14)

Grammar Noun, -s; VerbPosition 1.1.1.2.1.1.2. Contraventions of the FSA draft Code of Market ConductDefinition [Any act or engagement by] a person [who] has privileged possession of

relevant information that is disclosable information […] in any course ofconduct, which might reasonably be considered as likely to encourage orinduce any other person to deal in investments to which the information isrelevant (FsaM98c:p.14)

Context The prohibition on tip-offs does not apply to order-flow information (save inthe case of takeovers as dealt with above) (FsaM98c:p.15);Similarly, those who act for the bidder may not deal for their own benefit ininvestments to which information concerning the proposed bid is relevant,and, as will be seen, they cannot tip-off so as to benefit others (FsaM98b:p.22)

Definitioncomment

Whether a person’s actions might reasonably be considered likely toencourage or induce others to deal must be considered in the light of all thecircumstances, including accepted market practices and the expertise of thepersons concerned (FsaM98c:p.14)

Dictionarypractice

None


videregivelse af intern viden;tipping

Translationcomment

The probition on tip-offs originates from the EC Directive on Insider Dealing(89/592/EEC) and does consequently not differ conceptually from its Danishcounterpart (see record D6) (KJE).


Record U15Term(U15)

insider dealing (FsaM98b:p.32)

Grammar Noun, -sSynonym insider trading (HMT98a:p.43)

Grammar Noun, -Position 1.2.1. Contraventions of the Criminal Justice ActDefinition The purchase or sale of shares by someone who possesses ”inside”

information on a company’s performance which has not yet been madeavailable to the market, and which might affect the share price (LseF98:p.81)

Context The existing criminal sanctions against market manipulation and insidertrading remain necessary and important deterrents (HMT98a:p.43)

Definitioncomment

Under the draft [Financial Services and Markets] Bill, the FSA will have powerto institute criminal proceedings in England & Wales in respect of the offence[…] of insider dealing under Part V Criminal Justice Act 1993 (FsaF98:p.45)

Dictionarypractice

insiderhandel (SveE94)insiderhandel (PalJ94)


insiderhandel

Translationcomment

The Danish and British offences of insider dealing are equivalent. See,however, the discussion of ”intern viden” (D4) and ”privileged information”(U11) which form part of the concept of insider dealing (KJE)


10. Bibliography

Textbooks, laws and reports

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Trading, Etc. Copenhagen: Arthur Andersen, 1996AndI96 Andersen, Paul Krüger and Nis Jul Clausen Introduktion til børsretten – Børsreform II

Copenhagen: Jurist- og Økonomforbundets Forlag, 1996Arb96 HM Stationary Office Arbitration Act 1996 (of England) London: HMSO, 1996BacG97 Bache, Carl and Niels Davidsen-Nielsen Grammar Compendium – Part III: Chapters 9-12

Odense: Odense Universitet, 1997BanL95 Bank of England The London Code of Conduct for principals and broking firms in the wholesale

markets London: Bank of England, 1995BasC97 Basle Committee on Banking Supervision Core Principles for Effective Banking Supervision

(Consultative paper) Basle: Basle Committee on Banking Supervision, 1997BasT97 Basle Committee on Banking Supervision The Year 2000 - A Challenge for Financial Institutions and

Bank Supervisors Basle: Basle Committee on Banking Supervision, 1997BjeT97 Bjerre-Nielsen, Henrik ”Tilsynet med realkreditinstitutter” in Finanstilsynet Beretning fra

Finanstilsynet 1996 Copenhagen: The Danish Financial Supervisory Authority, 1997BlaD98 Blair, Alastair ”Dealing with the euro” in London Stock Exchange Exchange – The Magazine of the

London Stock Exchange, Issue 2, London: LSE, April 1998,BlaR97 Black, Julia Rules and Regulators Oxford: Clarendon Press, 1997BreH95 Brett, Michael How to Read the Financial Pages 4th Edition, London: Century Limited, 1995ButC98 Richards Butler Corporate and Commercial Newsletter London: Richards Butler, March 1998BørB95a Børsudvalget Børsreform II - Betænkning nr. 1290 afgivet af Børsudvalget Bind 1,

Copenhagen: Erhvervsministeriet (the Danish Ministry of Business and Industry), 1995BørB95b Børsudvalget Børsreform II - Betænkning nr. 1290 afgivet af Børsudvalget Bind 2,

Copenhagen: Erhvervsministeriet (the Danish Ministry of Business and Industry), 1995BørB95c Børsudvalget Børsreform II - Betænkning nr. 1290 afgivet af Børsudvalget Bind 3,

Copenhagen: Erhvervsministeriet (the Danish Ministry of Business and Industry), 1995BørB95d Børsudvalget Børsreform II - Betænkning nr. 1290 afgivet af Børsudvalget Bind 4,

Copenhagen: Erhvervsministeriet (the Danish Ministry of Business and Industry), 1995ChrF97 Christensen, Jan Schans ”Finanstilsynets kompetence over for børsnoterede tilsynsbelagte

virksomheder” in Finanstilsynet Beretning fra Finanstilsynet 1996Copenhagen: The Danish Financial Supervisory Authority, 1997

ClaB93 Clausen, Nis Jul Børsret - OplysningsforpligtelseCopenhagen: Jurist- og Økonomforbundets Forlag, 1993

ClaP96 Clausen, Nis Jul ”Privat- og offentligretlig regulering i selskabs- og børsretten” in Juridisk InstitutMaterialesamling – Børs- og Værdipapirhandelsret Copenhagen: CBS, 1997

ColD92 Collin, P.H. Dictionary of Law Teddington: Peter Collin Publishing Ltd, 1992CorA98 Corporate Communications Department, Lloyd’s A Brief History and Chronology,

London: Lloyd’s, 1998CorP98 Cordella, Tito and Eduardo Levy Yeyati Public Disclosure and Bank Failures

(Discussion Paper No. 1886) London: Centre for Economic Policy Research, 1998CseB98 Copenhagen Stock Exchange Børsetiske regler Copenhagen: CSE, 1998CseF98 Copenhagen Stock Exchange Fact Book 1998 – Fakta om Københavns Fondsbørs A/S (with an

English translation), Copenhagen: CSE, 1998CseS98 Copenhagen Stock Exchange Securities Trading, etc. Act (Translation) Copenhagen: CSE, 1998DenF95 Den Danske Bank Finansiel Ordbog, Copenhagen: Den Danske Bank, 1995DueK96 Due, Ole, Karsten Hagel-Sørensen and Laurids Mikaelsen Karnovs EU-Samling, Fifth Ed.,

Copenhagen: Karnovs Forlag, 1996EurC89 European Council, the Council Directive 89/592/EEC of 13 November 1989 coordinating regulations

on insider dealing Brussels: EC, 1989EurR89a Europæiske Fællesskab, det Rådets direktiv 89/592/EØF af 13. november 1989 om samordning af

retsforskrifterne vedrørende insider-handel Brussels: EC, 1989


EurR89b Europæiske Fællesskab, det Rådets andet direktiv 89/646/EØF af 15. december 1989 om samordningaf lovgivningen om adgang til at optage og udøve virksomhed som kreditinstitut og om ændring afdirektiv 77/780 (2. bankdirektiv) Brussels: EC, 1989

ErhF95 Erhvervsministeriet Finanstilsynets kontrol med de danske pengeinstitutter - Rapport fra det aferhvervsministeren nedsatte ekspertpanelCopenhagen: Erhvervsministeriet (the Danish Ministry of Business and Industry), 1995

FabI95 Faber, Dorrit and Mette Hjort-Pedersen Introduction to English Legal Language,Copenhagen: Copenhagen Business School, 1995

FinB96 Finanstilsynet Beretning fra Finanstilsynet 1995 - Tilsynet med Realkreditinstitutioner – With anEnglish Summary Copenhagen: The Danish Financial Supervisory Authority, 1996

FinB97 Finanstilsynet Beretning fra Finanstilsynet 1996 – With an English SummaryCopenhagen: The Danish Financial Supervisory Authority, 1997

FinB98 Finanstilsynet Beretning fra Finanstilsynet 1997Copenhagen: The Danish Financial Supervisory Authority, 1998

FinI90 Finanstilsynet Introduktion til FinanstilsynetCopenhagen: The Danish Financial Supervisory Authority 1990

FinS97 Finanstilsynets Børs- og Regnskabsafdeling ”Strukturændringer i den finansielle sektor” inFinanstilsynet Beretning fra Finanstilsynet 1996Copenhagen: The Danish Financial Supervisory Authority, 1997

FinT97 Finanstilsynets Sekretariats- og Planlægningsafdeling ”Tilsyn med finansielle koncerner” inFinanstilsynet Beretning fra Finanstilsynet 1996Copenhagen: The Danish Financial Supervisory Authority, 1997

Fmsl Fondsmæglerselskabsloven; Lov 1995-12-20 nr 1071 om fondsmæglerselskaber, som ændret vedL 1996-05-22 og L 1997-06-10 nr 475)(The Danish Investment Service Companies Act; Act 1995-12-20 No. 1071 on Investment ServiceCompanies as amended by Act 1996-05-22 No. 376 and Act 1997-06-10 No. 475)

FSA86 HM Treasury ”Financial Services Act 1986” in Shea, Tony, Deborah Sabalot and Clifford ChanceFinancial Services Act 1986 – A Guide to the Amended Legislation, London: Butterworths, 1990

FsaA98 Financial Services Authority Annual Report 1997/98 London: Financial Services Authority, 1998FsaC97a Financial Services Authority Consumer Involvement (Consultation Paper 1)

London: Financial Services Authority, 1997FsaC97b Financial Services Authority Consumer Compensation (Consultation Paper 5),

London: Financial Services Authority, 1997FsaD98 Financial Services Authority Designing the FSA handbook of rules and guidance (Consultation Paper

8), London: Financial Services Authority, 1998FsaF97 Financial Services Authority Financial Services Authority: an outline

London: Financial Services Authority, 1997FsaF98 Financial Services Authority Financial services regulation: Enforcing the new regime (Consultation

Paper 17) London: Financial Services Authority, 1998FsaM98a Financial Services Authority Meeting our responsiblities London: Financial Services Authority, 1998FsaM98b Financial Services Authority Market Abuse – Part 1: Consultation on a draft Code of Market Conduct

(Consultation Paper 10) London: Financial Services Authority, 1998FsaM98c Financial Services Authority Market Abuse – Part 2: Draft Code of Market Conduct (Consultation

Paper 10) London: Financial Services Authority, 1998FsaP97 Financial Services Authority Practitioner Involvement (Consultation Paper 2)

London: Financial Services Authority, 1997FsaP98 Financial Services Authority Promoting public understanding financial services: a strategy for

consumer education (Consultation Paper 15), London: Financial Services Authority, 1998FsaT98 Financial Services Authority The Financial Services Authority – Information Guide,

London: Financial Services Authority, 1998FSMB H.M. Treasury Financial Services and Markets Bill London: H.M. Treasury, 1998GraA97 Graham, George ”A leap into the dark” in The Banker, London: Financial Times, 27 November 1997GraU97 Graham, George ”Unravelling the tangled web” in

The Banker, London: Financial Times, 27 November 1997GrøF98 Grønborg, Jørgen, Erik Holst Jørgensen and Stein Wessel-Aas Beretning afgivet af Undersøgelses-

kommissionen vedrørende den Færøske Banksag Copenhagen: Justitsministeriet, 1998


HMT98a H.M. Treasury Financial Services and Markets Bill: A Consultation Document, Part One - Overviewof Financial Regulatory Reform London: HMT, 1998

HøpL97 Høpner, James ”Local Autonomy in Danish Banking: Historical Roots – Persistence and Change” inMorgan, Glenn and David Knights (Ed.) Regulation and Deregulation in European FinancialServices London: MacMillan Press Ltd., 1997

KJE Kjeldsen, Benjamin Holst, own commentsKjeN97 Kjeldsen, Benjamin Holst New Leader - New Labour

http://www.geocities.com/Athens/9841/TBLA.HTM/ 1997KjæF96 Kjær, Susanne Finansielle supermarkeder i Danmark og Storbritannien

MA Thesis, Copenhagen: Copenhagen Business School, 1996KjøF96 Kjøller, Thomas Finansielt tilsyn Copenhagen: Copenhagen Business School, 1996LeeB96 Leeson, Nick Barings Fald Copenhagen: Børsens Forlag, 1996Lgii98 Lov om en garantifond for indskydere og investorer; Lov nr. 415 af 26/06/1998

(The Danish Depositors and Investors Guarantee Fund Act; Act No. 415 of 26-6-1998)LifE98 LIFFE Euro Market Strategy London: LIFFE, 1998LloM98 Lloyd’s Marketing Department Market Strength (”information pack”) London: Lloyd’s, 1998LseA98 London Stock Exchange A Guide to the London Stock Exchange London: LSE, 1998LseD98 London Stock Exchange Depositary Receipts – Guide to listing London: LSE, 1998LseE98 London Stock Exchange Exchange – The Magazine of the London Stock Exchange, Issue 2, London:

LSE, April 1998,LseF98 London Stock Exchange Fact file 1998 London: LSE, 1998NorB91 Norton, Jospeph J. (Ed.) Bank Regulation and Supervision in the 1990s

London: Lloyd’s of London Press Ltd., 1991OthD94 Otholm, Carl Aage; Kim Busck-Nielsen: Kai Hammer-Pedersen; Peter Engbjerg Jensen

Dansk Bankvæsen i dag - i morgen 2. reviderede udgave, Copenhagen: FSRs Forlag, 1994PedK98 Pedersen, Jan, Bo von Eyben, Jørgen Nørgaard (ed.) Karnovs Lovsamling, 14th Ed., Copenhagen:

Karnovs Forlag, 1998RasB96 Rasmussen, Ulrich Behov for en reform af Indskydergarantifonden? MA Thesis,

Copenhagen: Copenhagen Business School, 1996SchT92 Schaumburg-Müller, Per Tilsynet med finansielle institutioner Copenhagen: Akademisk Forlag, 1992SheF90 Shea, Tony, Deborah Sabalot and Clifford Chance Financial Services Act 1986 – A Guide to the

Amended Legislation, London: Butterworths, 1990SveB97 Svendsen, Lotte and Danielle Tindbæk Børsreform II - En vurdering af om Lov om

Værdipapirhandel lever op til hensigten med Børsreformen, herunder en analyse af investorernessynsvinkel på Børsreformen MA Thesis, Copenhagen: Copenhagen Business School, 1997

SørF91 Sørensen, Elna Finansverdenen i London efter børsreformen og Financial Services Act,MA Thesis, Copenhagen: Copenhagen Business School, 1991

TriT95 Tripartite Group of Bank, Securities and Insurance Regulators, TheThe Supervision of Financial Conglomerates – A Report by The Tripartite Group of Bank, Securitiesand Insurance Regulators Basle: Basle Committee on Banking Supervision, 1995

TvæR95 Tværministerielle Kontaktudvalg vedr. det Finansielle Marked, Det Redning af pengeinstitutter siden1984 Copenhagen: Økonomiministeriet (the Danish Ministry of Economic Affairs), 1995

Vphl Værdipapirhandelsloven; Lov 1995-12-20 nr 1072 om værdipapirhandel mv.som ændret ved LBK nr797 af 06/11/1998(The Danish Securities Trading etc. Act; Act No. 1072 of 20 December 1995 on Securities Trading,etc. as amended by Consolidation Act No. 797 of 6 November 1998)

VphF98 L 150 (som fremsat): Forslag til lov om ændring af lov om værdipapirhandel m.v.Copenhagen: Økonomiministeriet (the Danish Ministry of Economic Affairs), 17 December 1998

WerB97 Werlauff, Erik Børsret – Værdipapir og handel, jura og økonomiCopenhagen: Børsens Forlag A/S, 1997

ØkoH97 Økonomiministeriet Håndtering af pengeinstitutkriserCopenhagen: Økonomiministeriet (the Danish Ministry of Economic Affairs), 1997

Oral Sources

DidC Diderichsen, Mette, Copenhagen Stock ExchangeKleF Klein, Henriette, Financial Services Authority


MelN Melby, Palle, Danmarks Nationalbank

Newspaper Articles

PolitikenPOL99a Søndergaard, Bo, Dorthe Lønstrup et al ”Sheriffen fra Fondsbørsen” Politiken, 21 January 1999POL98a Valgreen-Voigt, Steen ”Tilsyn bør fjernes fra ministerium”Politiken, 19 January 1998POL98b Elkjær, Jakob and Christian Lindhardt ”Storbankens logrende vagthund”

Politiken, 25 January 1998

Morgenavisen Jyllands-PostenJP98a Hansen, Jens Christian ”Drøje hug til Finanstilsynet” Morgenavisen Jyllands-Posten, 25 June 1998JP98b Hansen, Jens Christian ”Rigsrevisionen langer ud efter ATP og LD”

Morgenavisen Jyllands-Posten, 25 June 1998JP98c Eisenberg, Erik ”En løgn og dens farve” Morgenavisen Jyllands-Posten, 25 January 1998JP98d Hansen, Jens Christian ”Tilsynet var sat ud af kraft”

Morgenavisen Jyllands-Posten, 19 January 1998JP97a Rosenbak, Steen ”Nye regler for spekulation” Morgenavisen Jyllands-Posten, 6 November 1997JP97b Rosenbak, Steen ”EU ser på Finanstilsynets åbenhed”

Morgenavisen Jyllands-Posten, 7 November 1997JP96a Funch, Søren and Bjarne Schilling ”Finanstilsynet – øretævernes holdeplads”

Morgenavisen Jyllands-Posten, 24 January 1996

BørsenBØR99a Børsen (RB) ”Finanstilsynet kulegraves” Børsen, 28 January 1999BØR98a Andersen, Lene ”Børsmonopolet brudt” Børsen, 11 May 1998BØR98b Bull, Espen, Hugo Gården et al ”Eurobørs vil skabe fælles nordisk børs” Børsen, 8 July 1998BØR98c Krag-Johansen, Anders ”Overvågning af børser svækket” Børsen, 25 June 1998BØR98d Gården, Hugo and Finn Mortensen ”Jelved holder forsikring uden for finans-giganter”

Børsen, 11 June 1998BØR98e Givskov, Klaus ”Londons børs på jagt efter småsparerne” Børsen, 11 June 1998BØR98f Mortensen, Finn ”Nyt derivat-marked vil hjælpe erhvervsobligationer” Børsen, 30 July 1998BØR98g Gården, Hugo ”Rigsrevisionen smider bombe i Hafnia-sagen” Børsen, 25 June 1998BØR98h Korsholm, Frank ”Færinger forgyldt af Lykketoft” Børsen, 11 June 1998BØR98i Gården, Hugo ”Kun Den Danske Bank i skudlinjen i Færøsag” Børsen, 7 July 1998

SøndagsavisenSØN98 Nurrka, Jørn ”Fondsbørsen aktiv i hele Norden” Søndagsavisen, 26 October 1998

Financial TimesFT99a Martinson, Jane ”Fears persist on regulation reform” Financial Times, 9-10 January 1999FT99b Hargreaves, Deborah ”Financial regulators soon to work together” Financial Times, 20 January 1999FT99c Luce, Edward ”Master middleman takes centre stage” Financial Times, 10 February 1999FT99d Taylor, Paul ”Investors click a path to new online markets” Financial Times, 3 February 1999FT99e Kavanagh, John ”Web site attracts up to 20m hits a day” Financial Times, 3 February 1999FT99f Labate, John ”Regulator doubts fail to curb online brokerage” Financial Times, 17 February 1999FT99g Preston, Robert ”Public sector ’not prepared for euro’” Financial Times, 22 February 1999FT99h Harnischfeger, Uta and Vincent Boland ”Dispute hits London-Frankfurt link”

Financial Times, 24 February 1999

FT98a Graham, George ”Draft proposals for new City regulator published”Financial Times, 8 September 1998

FT98b Graham, George “Tougher powers for City watchdog” Financial Times, 7 May 1998FT98c Editorial, ”Bank regulators must keep pace” Financial Times, 20 April 1998FT98d Corrigan, Tracy ”Further industry deals expected” Financial Times, 7 April 1998FT98e Graham, George ”Authority to quadruple fines on firms” Financial Times, 26 March 1998


FT98f Graham, George ”Securities regulators issue guidelines for risk control”Financial Times, 23 March 1998

FT98g Brown-Humes, Christopher ”Regulators fine Sun Life of Canada record $1m”Financial Times, 22 April 1998

FT98h Editorial ”A sensible Exchange” Financial Times, 8 July 1998FT98i Davies, Simon and George Graham ”Europe’s Big Bang” Financial Times, 8 July 1998FT98j Adams, Christopher ”Walking a tricky tightrope” Financial Times, 29 June 1998FT98k Graham, George ”Rules on credit derivatives aligned” Financial Times, 23 July 1998FT98l Martinson, Jane ”Watchdog warns on pensions mis-selling deadline”

Financial Times, 28 December 1998FT98m Graham, George ”Regulator ’to set example to the world’” Financial Times, 31 July 1998FT98n Mason, John ”Former Barings directors to be banned” Financial Times, 2 December 1998FT98o Hargreaves, Deborah ”City super-regulator to pick up pieces of fragmented system”

Financial Times, 27 November 1998FT98p Wighton, David ”Warning on costs of City regulation” Financial Times, 18-19 April 1998FT98q Eaglesham, Jean and David Wighton ”Warning on powers of planned financial regulator”

Financial Times, 7 September 1998FT98r Martinson, Jane ”Banker hits at new regulator” Financial Times, 2 June 1998FT98s Martinson, Jane ”Watchdog unit offers safeguard on enforcement”

Financial Times, 18 December 1998FT98t Graham, George ”Finance regulator’s impact to be monitored”

Financial Times, 13 November 1998FT98u Harris, Clay ”UK regulator warns bankers on investments” Financial Times, 13 October 1998FT98v Martinson, Jane ”Top City regulator sets out consultation programme”

Financial Times, 20 August 1998FT98w Barnes, Hilary ”Riding for a fall” Financial Times, 27 October 1998FT98x Barnes, Hilary ”Crucial challenges ahead”Financial Times, 6 April 1998FT98y Adams, Christopher and George Graham ”Super-regulator to vet Lloyd’s agents”

Financial Times, 23 January 1998FT98z Bolger, Andrew ”Watchdog unveils plans for Lloyd’s supervision”

Financial Times, 1 December 1998FT98-1 Graham, George ”Regulators may punish systems ’bomb’ failures”

Financial Times, 13 October 1998FT98-2 Kelly, Jim ”Bank’s liquidators find way out of $17bn black hole” Financial Times, 8 July 1998FT97a Graham, George and William Lewis ”Financial regulation comes under one roof”

Financial Times, 23 May 1997FT97b Münchau, Wolfgang ”More in line with US and Germany” Financial Times, 23 May 1997FT97c Graham, George ”Separation of powers still under debate” Financial Times, 22 May 1997FT97d Ware, Dick ”Arguments against UK introducing a super-SIB are not insurmountable”

Financial Times (Letters), 6 June 1997FT97e Graham, George ”Stock Exchange to cut charges by 60 %” Financial Times, 12 September 1997FT97f Martinson, Jane ”Direct dealing closer for US investors” Financial Times, 30 October 1997FT97g Editorial ”All change for the super-SIB” Financial Times, 21 May 1997FT97h Brown-Humes, Christopher ”Supervisory role strengthened” Financial Times, 1 September 1997FT97i Brown-Humes, Christopher ”Pensions mis-selling could cost $13bn”

Financial Times, 13 october 1997FT97j Adams, Christopher ”Watchdog in waiting for new Lloyd’s” Financial Times, 30 May 1997FT97k Adams, Christopher ”Lloyd’s seeks to join City shake-up” Financial Times, 14 July 1997FT96a Barnes, Hilary ”In leaner and meaner shape” Financial Times, 21 March 1996FT96b Barnes, Hilary ”Bringing in the investor” Financial Times, 21 March 1996

Internet Publications

All sites were last accessed on 19 March 1999Please note that URLs should be typed exactly as indicated

AMP98 Dansk Autoriseret Markedsplads A/S Dansk AMP Informationhttp://www.danskamp.dk/content/info/default.asp


DBS98 DBS-online Velkommen til Danmarks første internet børsmægler http://www.dbs-online.dkFINa Finanstilsynet Formål og Kerneområder http://www.ftnet.dk/om/ide.htmFinb The Danish Financial Supervisory Authority Objectives and Core Area

http://www.ftnet.dk/engelsk/area.htmFinc The Danish Financial Supervisory Authority History http://www.ftnet.dk/engelsk/history.htmFSAa FSA Memorandum of understanding between HM Treasury, the Bank of

England and the Financial Services Authority (1997)http://www.sib.co.uk/pressrel/jointmou.htm

FSAb FSA New Regulator Launched (28 October 1997) http://www.sib.co.uk/pressrel/prcover.htmFSAc FSA Wholesale Market Supervision http://www.sib.co.uk/bank/wmsd.htmFSAd FSA Banking Supervision – Continuing Supervision http://www.sib.co.uk/bank/bscntsup.htmFSAe FSA R.U. Owed? http://www.pensions.fsa.gov.uk/html/ruowed/owed.htmFSAf FSA The FSA launches industry training programme (4 September 1998)

http://www.sib.co.uk/press/fsa65-98.htmHMT95 H.M. Treasury Chancellor’s Statement on the Insolvency of Barings

http://www.hm-treasury.gov.uk/pub/html/chxstatmt/barings.html 27 February 1995IMRa IMRO Introduction to IMRO http://www.imro.co.uk/about/a_what.htmLarR97 Large, Andrew Regulation and Reform, (Speech, 20 May 1997)

http://www.coi.gov.uk/coi/depts/GSI/coi8922c.okNYSa New York Stock Exchange The NYSE Glossary of Financial Terms

http://www.nyse.com/public/glossary/09ix.htmSCA SCADPlus Værdipapirmarkedet – Bestemmelse om insider-handel

(Summary – can only be accessed when logged on to SCADPlus)http://europa.eu.int/scadplus/leg/fa/lvb/124035.htm

SIBa SIB Introduction to financial services regulation http://www.sib.co.uk/intro.htm 96

SIBb SIB Links with other UK regulators and supervisors http://www.sib.co.uk/siblinks.htm 97

SIBc SIB The SIB Principles http://www.sib.co.uk/principles.htm 98

SIBd SIB The Recognised Clearing House (RCHs) http://www.fsa.gov.uk/rchs.htmSIBe SIB The Recognised Investment Exchanges (RIEs) http://www.fsa.gov.uk/ries.htmSIBf SIB The Recognised Professional Bodies (RPBs) http://www.fsa.gov.uk./rpbs.htmSIBg SIB The Self-Regulating Organisations (SROs) http://www fsa.gov.uk/sros.htmSIBh SIB About the ICS http://www.fsa.gov.uk/ics/about.htmSIBi SIB London Metal Exchange Annual Dinner – Speech by Howard Davies, Chairman, the Securities

and Investments Board http://www.sib.co.uk/speeches/071097.htmSIBj SIB A Proxy for a Global Regulator: the Way Ahead for International Supervision

http://www.sib.co.uk/speeches/053097a.htm

96 Text removed from internet site. See Appendix C.97 Text removed from internet site. See Appendix D.98 Text removed from internet site. See Appendix E.

http://www.sib.co.uk/principles.htm/


Appendix A

Relevant Internet Addresses

Abstract of this thesishttp://www.geocities.com/Athens/9841/finreg.htm

UKThe Financial Services Authorityhttp://www.fsa.gov.uk

The Securities and Futures Association (SFA)http://www.sfa.org.uk/home.htm/

The Investment Management Regulatory Organisation (IMRO)http://www.imro.co.uk/

HM Treasuryhttp://www.hm-treasury.gov.uk

The London Stock Exchange (LSE)http://www.londonstockex.co.uk

Tradepointhttp://www.tradepoint.co.uk/

The London International Financial Futures and Options Exchange (LIFFE)http://www.liffe.com

The London Securities and Derivatives Exchange Ltd. (OMLX)http://www.omgroup.com/

The International Petroleum Exchange of London Ltd. (IPE)http://www.ipe.uk.com/

The London Metal Exchange (LME)http://www.lme.co.uk/

Financial Timeshttp://www.ft.com

http://www.geocities.com/Athens/9841/finreg.htm

http://www.sib.co.uk/

http://www.sfa.org.uk/home.htm/

http://www.imro.co.uk/

http://www.hm-treasury.gov.uk/

http://www.londonstockex.com/

http://www.tradepoint.co.uk/

http://www.liffe.com/

http://www.omgroup.com/

http://www.ipe.uk.com/

http://www.lme.co.uk/

http://www.ft.com/


Appendix A

DenmarkBørsen (daily financial newspaper)http://www.borsen.dk

Danmarks Nationalbank (the Danish Central Bank)http://www.nationalbanken.dk

Dansk Autoriseret Markedsplads (Danish Authorised Market Place)http://www.danskamp.dk

DBS-online – Denmark’s first internet stock brokerage firmhttp://www.dbs-online.dk

Finanstilsynet (The Financial Supervisory Authority)http://www.ftnet.dk

Københavns Fondsbørs (Copenhagen Stock Exchange)http://www.xcse.dk

http://www.borsen.dk/

http://www.nationalbanken.dk/

http://www.danskamp.dk/

http://www.dbs-online.dk/

http://www.ftnet.dk/

http://www.xcse.dk/


Danish Summary

Formålet med dette speciale er at give studerende, oversættere og kommunikationsformidlere i den

finansielle sektor et overblik over forskelle og ligheder i finansielt tilsyn og regulering i Danmark

og Storbritannien. Specialet er opdelt i en realiadel og en terminologidel. Realiadelen behandler de

to landes finanstilsyns udvikling, deres nuværende struktur og tilsynsmæssige virkeområder samt

finanstilsynenes håndtering af skandaler i den finansielle sektor. I terminologidelen diskuteres

termer og begreber inden for børsretten med særligt henblik på at undersøge overtrædelser af

børsretlige regler i de to lande. Værdipapirhandelsloven i Danmark og det britiske foreslåede

børsreglement, ”Code of Market Conduct”, udgør terminologidelens sammenligningsgrundlag.

Det finansielle tilsyns historiske udvikling i de to lande gennemgås med henblik på at fremstille

baggrunden for Børsreform II i Danmark og den igangværende omstrukturering af det britiske

finanstilsyns opbygning og ansvarsområder. Storbritannien samler tilsynets opgaver i én

organisation, ”the Financial Services Authority”, mens Finanstilsynet i Danmark opstod som et

enhedstilsyn i 1990. I forbindelse med Børsreform II blev Fondsrådet oprettet, hvormed det kan

diskuteres om enhedstilsynet stadig eksisterer. Fondsrådet, Finanstilsynet, Københavns Fondsbørs

og det nye marked, Dansk Autoriseret Markedsplads, har på visse punkter overlappende

myndighed, hvilket især kan medføre en ulempe for selskaberne på de to markeder. Den nye

britiske tilsynsmodel gør derimod op med de funktionssammenfald, der indtil nu har eksisteret i den

opdelte tilsynsstruktur.

Det britiske finanstilsyn kommer derimod til at have stor magt, bla. i forbindelse med

regeludstedelse, under den foreslåede nye rammelov, ”the Financial Services and Markets Bill”.

Specialet undersøger dette ansvar, blandt andet via en sproglig undersøgelse af lovforslaget, og

konkluderer at begge landes finanstilsyn nyder stor indflydelse på udfyldelsen af ramme-

lovgivningen, hvilket bør modsvares af kontrol med deres virksomhed.

De to landes tilsynsmæssige virkeområder vil ikke være væsentligt forskellige, efter det britiske

lovforslag vedtages i parlamentet. Der er dog den forskel, at den foreslåede lovgivning forpligter det

britiske finanstilsyn til at have hensynet til forbrugeren som førsteprioritet. Dette er ikke tilfældet i

Danmark.

Redaktionen afsluttet 10. marts 1999.

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