Supervisory authority wants to probe reasons for penalties

The FSA will now start probing the reasons why compliance functions in financial companies did not discover penalty-prompting infringements in time.

By Complidia

“In good times, it is important that banks maintain strong governance.”

That is what Deputy Head of Department Rigmor Ansdal from the Financial Supervisory Authority says about the reason why the authority will now not only supervise financial institutions and penalise them if they violate the law, but also scrutinise the reasons why something failed in their process.

“When the FSA issues a supervisory response to a bank, it is only natural to have a look at the underlying cause of the bank’s infringement of the law. The response is a consequence of something going wrong in the first line, and that there has been a violation of the law. In cases of significant infringement, or in cases of repeated infringements and infringements in several areas, the Danish FSA will consider whether an infringement has also taken place in the bank’s second line. For example, it would be relevant to investigate why the infringement has not been detected by the compliance function, or whether the compliance function has adequately followed up on infringements,” Rigmor Ansdal says.

Natural development
She calls the new focus on causes a natural result of the development in the authority’s work with supervision of businesses. The investigation into the causes will take place alongside the supervision’s inspection of the business in question. Should the authority find failure in the governance function, it may not only lead to the business receiving an order to get in line with the rules, but also that the governance function receives an order to improve in the future.

“Among other things, strong governance involves effective controls in all three lines of defence. It is the responsibility of the compliance function to verify and assess whether the first line of business has been set up to ensure that the bank complies with the law. It is also the responsibility of the compliance function to verify and assess whether there is an adequate supervisory setup in the first line, ensuring that errors and infringements are discovered as early as possible, so that the bank may take the necessary measures to avoid them in the future,” Rigmor Ansdal says.

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