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    Danish Regulators Issue Multiple Updates for Financial Sector Entities

    April 08, 2022

    The Danish Financial Supervisory Authority (Danish FSA) conducted a study on the impact of COVID-19 on the Danish mortgage market, issued clarifications on requirements for internal ratings-based (IRB) models, and proposed guidelines on assessment of money laundering risks. Additionally, the Central Bank of Denmark (Danmarks Nationalbank) has published results of lending survey and set out recommendations on use of artificial intelligence by banks.

    Below are the key highlights of the recent updates:

    • Danish FSA has investigated the impact of COVID-19 pandemic on the Danish mortgage market and the analysis contains a review of conditions and mechanisms in the market, including the actions of key players, and sets out a number of experiences from this. The analysis notes that there is no evidence that the credit institutions capital or liquidity positions were challenged to such an extent that they became binding and thus limited the credit institutions' ability to be market makers.
    • Danish FSA published clarification on requirements for risk-weight of exposures in Norway for institutions that use the internal ratings-based method for calculating credit risk. Danish FSA mentioned that the requirements should apply to all institutions that have exposures in Norway. For Danish internal ratings-based institutions that have exposures in Norway, the Danish FSA will, therefore, apply the same interpretations that will apply to the Norwegian banks. 
    • Danish FSA is consulting on a draft guideline on risk assessment of associations in connection with the implementation of customer due diligence procedures pursuant to the Money Laundering Act. The purpose of the guide is to provide companies with a tool that they use in their risk assessment of associations when they have to carry out customer due diligence procedures according to the money laundering rules. Comments are requested until April 20, 2022.
    • The Central Bank of Denmark published lending survey results, which show, for first quarter of 2022, six large and medium-size banks, out of the 16 entities surveyed, report that they expect to tighten credit standards for private customers. Apart from the banks’ expectation of their overall credit standards, banks also report how they expect a number of factors to affect their credit standards in the following quarter. Almost half of the banks expect that changes in, among other things, perception of risk and appetite for risk will move credit standards in a tighter direction in the second quarter, which is related to the private customers’ increasing expenses.
    • The Central Bank of Denmark's data expert recommend that financial companies should live up to ethical and regulatory standards as they increase their use of artificial intelligence. The recommendations include preparing and maintaining an overview or catalog of various artificial intelligence models that the organization uses, evaluating the models, setting aside resources to evaluate the models, and creating a forum with other participants from the financial sector to share experiences and best practices in the field. 

     

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    Keywords: Europe, Denmark, Banking, Basel, Regulatory Capital, Covid-19, Credit Risk, IRB Model, Lending, Artificial Intelligence, Regtech, AML, ML Risk, IRB Approach, Central Bank of Denmark, Danish FSA

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