The Danish Financial Supervisory Authority and the Danish Consumer Agency recently issued a proposal for a Regulation on Proper Conduct for Financial Institutions. Currently being considered by relevant organizations and institutions, the regulation is expected to take effect on July 1 2003.

The regulation is issued with reference to the Act on Financial Institutions (660/2002). Its main focus is the relationship between consumers and financial institutions (primarily retail banking institutions), although dealings with commercial entities such as insurance companies, mortgage providers and, to a lesser extent, share dealers are also covered.

The principles of the proposal are that financial institutions must:

  • deal with consumers "properly and loyally";
  • prepare all agreements in written hard-copy form or similar means; and
  • advise consumers both when asked to do so and at their own initiative. ‘Advice’ is deemed to include recommendations, guidance, risk assessment and evaluation of the immediate economic effects of an agreement.

Furthermore, consumers should be encouraged to compare the various products and services of different financial institutions. When offering products and services financial institutions should take into account the fact that a consumer may be in receipt of social security, public funds or the like, and that their offers might impact on eligibility for such benefits.

Financial institutions have a duty to advise consumers of varying interest rates and repayment policies that apply to different consumer groups. Consumers have a right to be informed of the criteria by which they are determined as belonging to a particular group.

Financial institutions are also obliged to inform consumers of relevant tax regulations in relation to their products and services, or to advise them to obtain advice from a competent individual or legal entity.

The regulation seeks to improve consumer protection by issuing binding regulations for proper conduct. Proper conduct is currently regulated by the consumer ombudsman's guidelines. The Danish Financial Supervisory Authority will supervise compliance with the regulation, if empowered (i) to order a financial institution to change any conduct found to violate the provisions of the regulation, or (ii) if such order is not complied with, to fine the financial institution or, in serious cases, revoke its licence.

The proposal has attracted criticism. The financial industry regards it as too far-reaching, while the Danish Consumer Council claims that the Financial Services Authority is an inappropriate body for enforcing consumer protection issues. The Danish consumer ombudsman has also criticized the regulation for doing no more than implementing best practice guidelines. In light of such fierce opposition, the future of the regulation is uncertain.

For further information on this topic please contact Anders M Hansen at Osborne Clarke by telephone (+45 33 12 95 12) or by fax (+45 33 12 95 15) or by email ([email protected]).